week8-082 - • Profit can be negative, zero, or positive...

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1 Market Structure -- Firm s Environment is defined by Market Characteristics: 1.Number of firms and buyers 2.Similarity of product 3.Ease of entry into the industry Perfect Competition… Market demand and supply determines price Sellers and buyers are price-takers The Firm’s Decisions in Perfect Competition… Short Run Decisions Whether to produce or shut down? If the decision is to produce, what quantity to produce? Long Run Decisions Whether to stay in an industry or leave? Whether to increase or decrease plant size?
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2 Short Run Decision: Choosing the Profit-Maximizing Output Finding Profit in the Short-Run Short Run Decision: Choosing to Shutdown or Produce
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3 Short-Run Equilibrium Demand = Supply in market P = MR = MC (profit is maximized)
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Unformatted text preview: • Profit can be negative, zero, or positive • Firm will shut-down if P < min AVC Long Run Decision: Choosing to Enter or Exit an Industry Long Run Decision: Choosing to Change Plant Size 4 Long-Run Equilibrium • Demand = Supply in market • P = MR = MC (profit is maximized) • Profit is zero • Output is produced at minimum long run average total cost Permanent Changes in Demand and Long Run Adjustments Technological Change and Long Run Adjustments 5 Competition and Efficiency • Productive Efficiency • Allocative Efficiency Summary • Perfect Competition • Short Run Decisions and Equilibrium • Long Run Decisions and Equilibrium • Adjustments to Change • Efficiency of Competitive Markets...
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This note was uploaded on 04/29/2008 for the course ECON 0100 taught by Professor Kenkel during the Spring '08 term at Pittsburgh.

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week8-082 - • Profit can be negative, zero, or positive...

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