ECN 104 Chapter Notes - Chapter 10: Economic Equilibrium, Competitive Equilibrium, Demand Curve

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ochrelizard803

7 Sep 2017

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Ecn104 chapter 10: perfect competition in the long run. 10. 1 the long run vs the short run: the entry and exit of firms in our market models can only take place in the long run. In the short run, the industry is composed of a specific number of firms, each with a plant size that is fixed and unalterable in the short run. Firms may shut down, in the sense that they can produce zero units of output in the short run, but they do not have sufficient time to liquidate their assets and go out of business. In the long run, by contrast, the firms already in an industry have sufficient time to either expand or contract their capacities. The time horizons are far less important than the process by which profits and losses guide business managers toward the efficient use of society"s resources. 10. 2 the long run adjustment process in perfect competition.

Related Questions

Match the following.

constant-cost industry	A market structure in which a large number of firms sell a homogenous product or service with no restrictions on entry or exit and each firm is a price-taker.
increasing-cost industry	The demand facing a price-taking firm.
long-run equilibrium	A firm produces zero output but must still pay its fixed costs.
marginal revenue product	Price below which a firm shuts down in the short run.
perfect competition	All firms produce where price equals long-run marginal cost, and economic profits are zero.
perfectly elastic demand	Industry in which input prices rise as all firms in the industry expand output.
shut down	Industry in which input prices remain constant as all firms in the industry expand output.
the shut-down price	The additional revenue earned by hiring one more unit of a variable input.

viridianhare336

The shape of the long-run cost curve is determined by economies and diseconomies of scale. Contrast this curve with the short-run cost curve as it relates to increasing and diminishing marginal returns to labor.

Describe an industry that would meet the conditions of a perfectly competitive industry and how the individual firms would respond to an increase in the market demand for the product.

When developing short-run cost curves, it is assumed that all firms in the perfect competition have the same cost curves and they all make identical short-run profits or losses. Contrast this to the real world and why individual firms might experience different cost curves and different profits.

orchidsheep271

Suppose you are given the following information about an industry:

Qd = 6500 - 100P Market Demand

Qs = 1200P Market Supply

Assume further that a representative firm's cost function is::

C(q)= 722 + q^2 / 200 and Marginal cost of

MC(q) = q / 100

Assume further that firms are identical and the market is characterized by perfect competition.

A) Find the equilibrium price and quantity and the output the firm will produce in the short run. What is the profit of each firm?

B) Would you expect entry or exit to this industry in the long run? Explain. What effect would such entry/exit have on the market equilibrium?

C) What is the lowest price the firms may survive in the long-run? Is profit positive, negative, or zero at that price?

D) What is the lowest price the firm may sell in the short-run? Is profit positive, negative, or zero at that price?

pearferret188

ECN 104 Chapter Notes - Chapter 10: Economic Equilibrium, Competitive Equilibrium, Demand Curve

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