ECON 111 Lecture Notes - Lecture 9: Allocative Efficiency, Deadweight Loss, Fixed Cost
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ECON 111 Full Course Notes
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Firms will produce in the long as profit >= 0. All firms are identical: means same firm size and they have similar lost structure. Constant cost industry: expansion or contraction of the industry has no influence on prices of resources. If profit >= 0 firms will continue to produce or enter the industry. If profit is < 0 firms exit from the industry. P>min atc -> firm has profits new firms enter. Market supply increases-market price decreases and firms profit decreases. Eventually price reaches min atc and profits are eliminated. Once firms break even firm stop entering market. P< min atc -> profit <0 -> exit -> s decreases -> price increases -> eventually p. Long-run pure competition equilibrium price = min atc. The long-run supply curve is horizontal in constant cost industry. Producing a good or service with the least amount of resources. Means per unit cost is minimized (min atc)