Lecture 16-Perfect Competition Revisited
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Perfect Competition Revisited
Long Run Industry Supply Curve
1. After economic profits are driven to zero by entry or exit, what is the relationship
between price and quantity supplied?
2. How does (minimum) ATC vary as the number of firms in the industry increases
The Long-Run Industry Supply Curve
Horizontal Ù New firms have same cost structures as existing firms
Upward-Sloping Ù New firms bid up cost of factors of production for all firms
New firms are less efficient and have higher costs of
Case #1: All firms have identical cost schedules
Case #2: New Entrants have higher costs
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