ECON 20A Lecture Notes - Lecture 9: Monopoly Profit, Natural Monopoly, Demand Curve

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29 Aug 2016

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Ch 14. 3 the supply curve in a competitive market. First, we examine a market with a fixed number of firms. Second, we examine a market in which the number of firms can change as old firms exit the market and new firms enter. Over short periods of time, it is often difficult for firms to enter and exit. Over long periods of time, the number of firms can adjust to changing market conditions. The short run: market supply with a fixed number of firms. The quantity of output supplied to the market equals the sum of the quantities supplied by each of the. To derive the market supply curve, we add the quantity supplied by each firm in the market. The long run: market supply with entry and exit. What happens if firms are able to enter or exit the market. All current and potential firms have the same cost curves assuming everyone has same access to technology and market.

Related Questions

Long-Run Market Equilibrium.

Suppose that in a particular perfectly competitive industry, the technology is characterized by the total cost function:

TC (Q) = 100 + 3Q + (Q^2/25)

*Remember the derivative of a function of the form.

This implies that the marginal cost function is given by MC (Q) = 3 + 2Q/25. Firms incur the fixed cost of 100 only if they enter the industry (or remain in the industry). Suppose that demand for the product is given by D = 200(10 â P) then suddenly shifts to D = 200(13.5 â P). Briefly describe in words what happens to price, quantity, firm profits and number of firms in the market in each scenario:

The short-term, where firms can neither change their quantities nor enter or exit the market.

The medium-term, where firms can change their quantities but cannot enter or exit the market.

The long-term, where firms can change their quantities and can also enter or exit the market.

Your firm is one of 100 identical firms operating in the short run in a perfectly competitive market. Your total cost function (short run and long run) is C = 800 + 25 q + 0.5 q2, and your marginal cost function is MC = 25 + q. The (short run and long run) market demand curve is given by Q = 2,750 â 5P. a.Find the supply curve for your firm. Show work. Then, find the short-run market supply curve. Show work. b.Find equilibrium price, P*, and quantity, Q*, in the market in the short run.Show work. c.Find the lowest price at which your firm will not exit the market in the long run.Show work. Referring to your answer in part b, should your firm exit the market in the long run if P* in the market does not increase over time?Explain. d.If you choose not to exit, how many firms (including your own) do you expect to be in the market in the long run?Show work, and explain.

lavenderotter524

In a competitive market with identical firms:

1. free entry and exit into the market requires that firms earn zero economic profit in the long run even though they may be able to earn positive economic profit in the short run.

2. firms can earn positive economic profit in the long run if the long-run market supply curve is upward sloping.

3. an increase in demand in the short run will result in a new price above the minimum of average total cost, allowing firms to earn a positive economic profit in both the short run and the long run.

4. firms cannot earn positive economic profit in either the short run or long run.

fuchsiaraccoon523

ECON 20A Lecture Notes - Lecture 9: Monopoly Profit, Natural Monopoly, Demand Curve

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