A_Decrease_in_Demand_for_the_Firm_in_Per

A_Decrease_in_Demand_for_the_Firm_in_Per - exit of existing...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
A Decrease in Demand for the Firm in Perfect  Competition o Initially the perfectly competitive firm and industry are in  long-run equilibrium at point 1 (see graph) o Price is P 0   o Output is q 0  for the firm o Output is Q 0  for the industry o Demand curve = D 0 o There are zero economic profits
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
o Now suppose there is a decrease in demand o D 0  shifts left to D 1 o Price P 0  falls to P 1 o Output falls to Q 1  for the industry o Output falls to q 1  for the firm o See point 2 o Point 2 is not a long-run equilibrium because price P 1  is  below the ATC curve o When there are losses in the long-run existing firms will 
Background image of page 2
Background image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: exit of existing firms o S will shift left to S 1 for the industry o Output will fall from Q 1 to Q 2 for the industry o Equilibrium is restored at P and Q 2 in the o long-run (point 3) o For the firm price rises to P and output returns to q o So, output falls for the industry but rises for the firm because now there are less firms in the industry and existing firms produce more o Long run equilibrium is restored at point 3...
View Full Document

Page1 / 3

A_Decrease_in_Demand_for_the_Firm_in_Per - exit of existing...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online