ECO101H1 Lecture Notes - Price Ceiling, Demand Curve, Marginal Revenue

48 views5 pages

chocolatewhale65

14 Apr 2014

School

Department

Course

Professor

For unlimited access to Class Notes, a Class+ subscription is required.

elizabethkandelaki and 40134 others unlocked

ECO101H1 Full Course Notes

Verified Note

98 documents

Document Summary

What happens in a market place when there are no rent control and there is an increase in demand. Economic profits are earned by existing landlords. Attracted by existing landlord, new firms enter (new apartments built); no barrier to entry. Prices decline, and economic profits are eliminated. End up with more rental accommodation, at no increase in price (if long-run industry cost curve is horizontal) More apartments be built, prices will be driven down, economic profits will be eliminated, if this is a constant cost industry, there will be no increase in price. Constant cost industry: cost curve of new firms are the same as those of existing firms => back to original price. Increase in demand but the price is not allowed to increase. What happens both in the short run and the long run. Initial equilibrium: 10,000 firms, in long run equilibrium. Profit maximizing, p = = mc, zero economic profit, = (minimum) atc.

Related Questions

1. In a constant cost industry, P = AC = $20. Which sequence of events follows an increase in demand?

a. P = AC, firms make no economic profit, existing firms leave output unchanged, new firms enter the industry, profits remain normal, P = AC = $20.

b. P > AC, firms make an economic profit, existing firms expand output, new firms enter the industry, the short-run supply curve shifts left, price falls until profits return to $0.

c. P > AC, firms make an economic profit, existing firms expand output, new firms enter the industry, the short-run supply curve shifts right, price falls until profits return to $0.

d. P < AC, firms suffer an economic loss, existing firms reduce output, new firms enter the industry, the short-run supply curve shifts right, price falls until profits exceed $0.

2. Describe the supply curve of a constant cost industry.

a. Upward sloping

b. Flat

c. Downward sloping, then upward sloping

d. Downward sloping

3. At the profit-maximizing output level P = MC, if P > AC then firms can earn an above-normal profit, causing entry into the industry. True or false?

4. In a competitive market, the amount of a good that is produced is such that social surplus is:

a. Minimized

b. Maximized

c. Zero

d. Hidden

magentabee19

1) When positive economic profits exist in an industry:

the market price of the good produced by the industry is less than the marginal cost faced by the industry.

the market price of the good produced by the industry is less than the average total cost of the industry.

there is an exit of firms from the industry.

resources flow from less productive uses to that particular industry.

2) When price is less than the firms' minimum average total cost, ________.

firms' profits are likely to be maximum

prices are likely to fall further

new firms will enter the market

existing firms will leave the market

3) The entry of new firms into a perfectly competitive market will cause:

an increase in the profitability of existing firms.

a decrease in the profitability of existing firms.

a right shift of the demand curve of the good being produced by the firms.

a left shift of the demand curve of the good being produced by the firms.

4) Entry of new firms into an existing market causes:

a downward movement along the market supply curve.

a leftward shift of the market supply curve.

an upward movement along the market supply curve.

a rightward shift of the market supply curve.

5) The incentive for new firms to enter into a perfectly competitive market is primarily the:

high level of government intervention in the market.

large number of buyers in the market.

large number of existing firms in the market.

positive profits observed for the existing firms in the market.

10) If firms in a competitive industry are earning positive economic profits, in the long run we expect A) the demand curve for the product will shift to the left, so that the price of the product will fall. B) the supply curve for the product will shift to the right as new firms enter the industry, causing industry output to increase and price to fall. C) there would be no change in the industry as long as P = MC for the individual firms. D) the individual firms will lower their price to discourage new firms from entering the industry. E) the government would intervene and force the firms to lower prices.

ECO101H1 Lecture Notes - Price Ceiling, Demand Curve, Marginal Revenue

ECO101H1 Full Course Notes

Document Summary

Get access

Related textbook solutions

Principles of Economics

Principles of Macroeconomics

Principles of Microeconomics

Related Documents

ECO101H1 Lecture 16: Lecture 16-Perfect Competition Revisited

ECO101H1 Lecture Notes - Organic Food, Marginal Revenue, Fixed Cost

ECO101H1 Lecture Notes - Lecture 7: Average Variable Cost, Warren Buffett, Marginal Revenue

Related Questions