PS7 Answer Key

PS7 Answer Key - b. In the long run, new firms enter the...

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Chapter 11 Answer Key 1. a. Output of 30. Zero economic profit. b. Output of 20. Economic loss of $80. c. Output of 30. Economic profit of $90. 2. See the graph below. Quantity Price $60 $80 Supply Demand $60 $80 MC Quantity Market Representative Firm ATC 500,000 Long-run supply 500 a. In the short run, the demand curve shifts out to the right sufficiently to raise the price to $80 a bushel. Existing firm raise their output to a quantity above 500 (where MR=MC) and earn an economic profit shown by the shaded region in the graph on the right.
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Unformatted text preview: b. In the long run, new firms enter the market, reflected by a shift in the supply curve to the right. Since it is a constant-cost industry, sufficient firms enter the market (the supply curve shifts sufficiently to the right) so that equilibrium price returns to $60 a bushel. The representative firm returns to earning zero economic profit and selling 500 bushels. There are, however, more firms in the market, so the market output increases....
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This note was uploaded on 11/04/2009 for the course ECON 201 taught by Professor Williams during the Fall '08 term at UVA.

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