ECO 1304 Lecture Notes - Lecture 36: Perfect Competition, Productive Efficiency

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In perfect competition, long-run equilibrium occurs at zero economic profits. 8. 5 section check: economic profits will encourage entry of new firms, which will shift the market supply curve to the right, driving down prices and revenues to the firm. This is the long-run equilibrium for the competitive firm. Any positive economic profits signal resources into the industry, driving down prices and revenues to the firm. Any economic losses signal resources to leave the industry, leading to supply reduction, higher prices, and increased revenues. In a constant-cost industry, prices of inputs do not change as output changes. In an increasing-cost industry, the cost curves of the individual firms rise as total output increases; in a decreasing-cost industry, the cost curves decline as total output increases. How is perfect competition economically efficient: perfect competition requires a firm to operate at the minimum of its.

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