Econ101October15 - down and it will not be good to stay in...

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Econ 101 October 15, 2007 In the long run…. Long run conditions are determined by an interaction of technology and market demand If technological developments or changes in market demand exist, changes in long term occur Key component of technology is minimum efficient scale When its small, leads to competition When large, leads to monopoly, oligarchy Ex.) Friendly Hacker Systems Uses Capital (working computer, DVD’s, and internet connection) and labor (IT specialist) Holding capital constant, table shoes labor (handout 12) (SHORT RUN bc CAPITAL held CONSTANT) o Up to 2 units, increases marginal productivity o Go online to see slide 11 o P=MR o Profit = Q*MC - Q*ATC Company makes profit What should he do? o Get bigger? o Stay same? o Smaller? Answer depends on why price is above total cost If more companies are going to enter market, they will drive price
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Unformatted text preview: down and it will not be good to stay in market Friendly Hacker is “better” and can continue to make profit and grow because they have no competitors • If it expands, it’s only because they use private technology and not public • If you want something to expand, you need to show where cost comes from • Where does public technology assumption fail? • At price of $65, there is profit. • At price of $22 there is no profit however, running at this price is better than making 0 output because you are losing less money by producing 4 units at $22 then the price of producing 0 and still having to pay fixed costs • At $10.50 you should make 0 because your losing more money producing 2 units then by making 0 units EXPERIMENT: WEDNESDAY NIGHT AT 10:00 PM!!!!!...
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