Lecture 08 - ECO100

Lecture 08 - ECO100 - ECO 100Y ECO 100Y t d t i t t d t i t...

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Unformatted text preview: ECO 100Y ECO 100Y t d t i t t d t i t Introduction to Introduction to conomics conomics Economics Economics Lecture 8: Lecture 8: ong ong un Competitive un Competitive Long Long-Run Competitive Run Competitive Equilibrium Equilibrium Gustavo Indart Slide 1 Competitive Industry Adjustment Competitive Industry Adjustment in the Long in the Long-Run Run The quantity of capital is fixed in the short-run for both existing and potential firms in the industry That is, the total capital employed in the industry is fixed in the short-run Therefore, the number of firms in the industry is fixed in the short-run In the long-run, firms can change the level of capital and can enter or exit the industry The long-run industry adjustment thus implies Change in the number of firms hanges in the scale of production of each firm Gustavo Indart Slide 2 Changes in the scale of production of each firm Competitive Industry Adjustment Competitive Industry Adjustment in the Long in the Long-Run Run (continued) (continued) Why would the number of firms change in the long- run? If existing firms in the industry are making economic profits, new firms will enter the industry in the long- run If existing firms in the industry are making economic losses, they will exit the industry in the long-run The assumption of profit maximization implies that the umber of firms will change in the long- n Gustavo Indart Slide 3 number of firms will change in the long run Competitive Industry Adjustment Competitive Industry Adjustment in the Long in the Long-Run Run (continued) (continued) Why would a firm change its production capacity in the long-run? irms can increase profits in the long n through an Firms can increase profits in the long-run through an increase or decrease in their production capacity As long as a different production capacity can produce an output at a lower cost, firms will change the size of their plants The assumption of profit maximization implies that the production capacity of the firm will change in the long- n Gustavo Indart Slide 4 run Change in the Number of Firms...
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Lecture 08 - ECO100 - ECO 100Y ECO 100Y t d t i t t d t i t...

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