MGEA02H3 Lecture Notes - Lecture 2: Plywood, Deadweight Loss, Opportunity Cost
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MGEA02H3 Full Course Notes
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Shocks and movements to short and long run equilibrium. A period of time too short for firms to change the amount of capital equipment they are currently using. A period of time too short for new firms to enter the industry or for existing firms to permanently exit. A period of time long enough so that the firm can change its amount of capital equipment so as to produce at the lowest possible average cost. A period of time long enough for firms to enter or exit the industry in response to profit or loss. Because of potential entry and exit, supply is more responsive in the long run (more elastic). In the long run, each firm will want to hire capital and labour in the right proportions to allow it to produce at lowest possible average cost (qmes) Choose capital equipment such that q = min on lrac.