This preview shows pages 1–2. Sign up to view the full content.
This preview has intentionally blurred sections. Sign up to view the full version.View Full Document
Unformatted text preview: Lecture XVI, October 31, 2007; Prob Set 4 Due Midterm Next Wed, Past Midterm Posted Next Monday Review Session Marathon Saturday, Nov 3, 9-11am in Monroe 321 I. Golden Rule for Price-Taking Firms to Maximize Profit II. Long Run Supply Curves with Free Entry III. Analysis of a School Uniform Requirement IV. Welfare Effects of Perfectly Competitive Equilibrium I. Golden Rule for price-taking firms to maximize profit A. Profit-maximizing output in the short run where: 1. P = MC S 2. P = AVC (Otherwise shut down), output = 0 B. Profit-maximizing output in the long run where: 1. P = MC L 2. P AC L (Otherwise exit the industry) II. Long Run Market Supply Curves With Free Entry and price taking firms A. Long-run equilibrium means no entry or exit 1. Firms earn normal profit in the short and long run this only occurs at the bottom of bird's nest where: P = MC L = MC S = AC L = AC S B. External economies - effect of entry on costs of firms already in the industry and key to slope of long run supply:...
View Full Document
- Fall '07