ECO101H1 Lecture Notes - Price Ceiling, Demand Curve, Marginal Revenue
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ECO101H1 Full Course Notes
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What happens in a market place when there are no rent control and there is an increase in demand. Economic profits are earned by existing landlords. Attracted by existing landlord, new firms enter (new apartments built); no barrier to entry. Prices decline, and economic profits are eliminated. End up with more rental accommodation, at no increase in price (if long-run industry cost curve is horizontal) More apartments be built, prices will be driven down, economic profits will be eliminated, if this is a constant cost industry, there will be no increase in price. Constant cost industry: cost curve of new firms are the same as those of existing firms => back to original price. Increase in demand but the price is not allowed to increase. What happens both in the short run and the long run. Initial equilibrium: 10,000 firms, in long run equilibrium. Profit maximizing, p = = mc, zero economic profit, = (minimum) atc.