EC120 Lecture Notes - Lecture 4: Demand Curve, Diminishing Returns, Longrun
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31 lomoar cpsd| 5490467- at any given price, add up quantity of supply of all firms. Market supply is number of firms multiplied by firm-level supply. In the long-run, all costs are variable. In the long run, if a firm produces nothing: profit(0) = 0 - in a firm produces anything: profit(1) = p * q - tc. Long run firms can enter and exit the industry. Assume all firms have access to the same technology - if existing firms are profitable, new firms will enter. If existing firms are marking a loss, some firms will exit - entry/exit firms earn zero profits in the long-run. Long-run market supply at minimum of atc curve. Supply curve is upward sloping because of diminishing marginal product - in the long run. Firms enter/exit until firms make zero profit. Supply curve is horizontal at minimum of atc curve - demand changes. Short run: follows usual supply and demand rules.