ECON 1B03 Lecture 13: Module 35 - 8.5 Perfect Competition Using Algebra to Analyze the Market

• School: McMaster University
• Department: Economics
• Course: ECON 1B03
• Professor: Hannah Holmes

Document Summary

Module #35 - 8. 5 perfect competition: using algebra to. Suppose that a market is initially in lr eqm, so that in the sr, Suppose there"s an increase in demand in the market. New firms will start to enter the industry. As supply increase, the price is driven back down. As price falls, profits fall and entry slows down. Firms stop entering when p returns to min atc and profits = 0. Net lr result: same market price, but more firms producing so more q available in the market. If industry output increases, the demand for inputs will increase. Input sellers may increase their input prices, thus raising the costs of production of the final goods. An increase in p is required to increase the market quantity supplied. The market supply curve will be upward sloping. If input prices do not increase as market output increases, firms" costs will not change.