Week9_2 - (on LRS curve) 08/25/08 Econ 2005 6 Comparing the...

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08/25/08 Econ 2005 1 Short-Run Firm Supply Curve Price below minimum AVC, firm shuts down; Q = zero Price above minimum AVC, firm produces up to the point where P=MC The short-run supply curve therefore is the ..
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08/25/08 Econ 2005 2 The industry supply curve shows the relationship between the price of a good and the total output of the industry as a whole.
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08/25/08 Econ 2005 3 The Short-Run Market Equilibrium There is a short-run market equilibrium when the quantity supplied equals the quantity demanded, taking the number of producers as given.
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08/25/08 Econ 2005 4 Long run equilibrium of a competitive industry
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08/25/08 Econ 2005 5 The Effect of an Increase in Demand in the Short- Run and the Long-Run D↑ P↑ non-zero profits entry S↑ P↓ back to zero profit
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Unformatted text preview: (on LRS curve) 08/25/08 Econ 2005 6 Comparing the Short-Run and Long-Run Industry Supply Curves The long-run industry supply curve is always flatter— more elastic —than the short-run industry supply curve. This is because of entry and exit : 08/25/08 Econ 2005 7 Three conclusions about the cost of production and efficiency in the long-run equilibrium of a perfectly competitive industry: 1) In a perfectly competitive industry in equilibrium, the value of marginal cost is the same for all firms. 2) In a perfectly competitive industry with free entry and exit, each firm will have zero economic profits in long- run equilibrium. 3) The long-run market equilibrium of a perfectly competitive industry is efficient: no mutually beneficial transactions go unexploited....
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This note was uploaded on 03/30/2008 for the course ECON 2005 taught by Professor Zirkle during the Fall '07 term at Virginia Tech.

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Week9_2 - (on LRS curve) 08/25/08 Econ 2005 6 Comparing the...

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