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PAM_2000_Spring_2009_Lecture_15

PAM_2000_Spring_2009_Lecture_15 - PAM2000Lecture15 Prelim 2...

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    PAM 2000 Lecture 15 Prelim 2 Will cover Lectures 8 through 15 Perloff: Chapters 5 through 8, pages 269-79 of Ch. 9 Miller, Benjamin, North: Ch. 1 through 14 Agenda
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    Long-run market supply curve Recall: Were discussing case where: Free entry and exit An unlimited number of firms All firms have identical costs Input prices are constant (don’t change with with output)
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    Long-run Market supply curve Then, the long-run market supply curve will be flat at the minimum of the LRAC Reasoning: If the price is a tiny bit greater than the minimum of the LRAC curve, then firms will enter More firms increases n, expand market output until economic profits are driven to zero
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      Long-run Market supply curve  (con’t) Price will not be below minimum of the LRAC curve because firms will shut down
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    Long-Run Firm and Market Supply with Identical Firms
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    Long-Run Firm and Market Supply with Identical Firms: constant cost market
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    Long-run Market supply curve:  Upward sloping Long-run supply may slope upward for several reasons: Number of firms may be limited : 1: Government regulations restrict entry, so the number of firms in the market will be limited If the number of firms is limited, it is only possible to expand output if the existing firms expand their output, which means climbing up the LRMC curve (recall slope of market supply with 5 firms)
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    Short-Run Market Supply with Five Identical Lime Firms p , $ per ton 140 50 175 q , Thousand metric tons of lime per year 6.47 6.47 6 7 p , $ per ton 7 5 0 AVC (a) Firm MC 200 150 100 50 250 700 Q , Thousand metric tons of lime per year 6 5 0 (b) Market S 3 S 4 S 5 S 2 S 1 S 1
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    Long-run Market supply curve:  Upward sloping 2: Inputs may become scarce as output increases : Even if firms have identical costs and free entry, if some input becomes scarce as output expands (e.g. land becomes scarcer, specific
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