ECON 1 Lecture Notes - Lecture 19: Sunk Costs, Variable Cost, Opportunity Cost
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An industry in the long run equilibrium, every firm in industry has zero profits zero profit condition. Short run equilibrium: fixed factors of production. Short run: a period of time during which only some decisions can be changed. Long run: a period of time long enough to allow all decisions to be changed. Stage 1 (long run) decide whether to rent restaurant space. Some costs are fixed in short run. You have already paid overhead (sunk cost), not drawn into the supply curve! Decisions can"t be changed in the short run. Profit for a restaurant: 4* 4 = . If firms lose , regret decision to open. Suppose just 1 restaurant, what is the profit? () Suppose 2 restaurants, what is the profit? () Suppose 3 restaurants, what is the profit? () If there are 4 restaurants, one would leave in the long run. How many restaurants will be open in a long run equilibrium? (3)
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