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Unformatted text preview: p * = MC MWTP = MC Social Optimum 22 $ $ D MC = s P * Q * q Q Firm Market S = Σ MC d q * Equilibrium with no entry or exit: Note: Q* = N • q * 3 23 Profits can be positive or negative before there is entry or exit. Positive profits: P* AC * q* MC AC S D Firm Market 24 Negative profits: AC* q* MC AC S D Firm Market Loss P* 25 Stage 2: Firms can enter or exit. 26 q 1 MC AC S 1 D Firm Market Q q $ P 1 Initially, firms earn profit. 28 q 3 MC AC S 1 D Firm Market Q S 2 S 3 q $ P 1 p 2 p 3 30 Equilibrium with free entry and exit: P** q** MC AC D Firm Market Q** MWTP = P = MC = AC = min AC N* * = Q * * Profit = 0. q * *...
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This note was uploaded on 04/03/2008 for the course ECON 1 taught by Professor Martholney during the Fall '08 term at Berkeley.
- Fall '08