ECON 200 Lecture Notes - Lecture 25: Marginal Cost, Macroeconomics

• School: University of Arizona
• Department: Economics
• Course: ECON 200
• Professor: ALL

Document Summary

Process of entry and exit ends only when price and average total cost are driven to equality. Marginal cost and average total cost are equal, however, only when the firm is operating at the minimum of average total cost. Level of production with lowest average total cost is called the firm"s efficient scale. In the long-run equilibrium of a competitive market with free entry and exit, firms must be operating at their efficient scale. Price equals minimum of average total cost atc; profit is zero. There is only one price consistent with zero profit the minimum of average total cost. In the zero-profit equilibrium, economic profit is zero, but accounting profit is positive. Firms stop entering and exiting when market profits equal zero. Two reasons that the long-run market supply curve might slope upward 1. some resources used in production may be available only in limited quantities 2. firms may have different costs.