MGEA02H3 Lecture Notes - Demand Curve, Perfect Competition, Market Power

• School: UTSC
• Department: Economics for Management Studies
• Course: MGEA02H3
• Professor: Michael Krashinsky

Document Summary

Review what happens in long run in perfect competition: So if > 0, that is, if economic profits are positive, the firm is covering all of its costs, making a reasonable return on capital and getting reasonable compensation for the efforts (time) of the entrepreneur. Plus getting something extra (the economic profits) Positive profits makes this a very attractive industry for entrepreneurs looking to make money. Buried behind this is the implicit assumption that there are entrepreneurs hunting for exactly these kinds of opportunities. So > 0 leads these entrepreneurs to enter the industry as new firms. But as we saw, more firms shifts supply curve to the right. Note : this continues until the entry stops. But entry continues as long as > 0. So entry continues until profits are driven down to zero. Now let"s look at case 1 (negative profits).