Chp11 PErfect competition notes

Chp11 PErfect competition notes -...

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The signal to enter (or exit) an industry is the level of  economic profit o If economic profit > 0 (positive), firms are  making above normal returns and firms will be  attracted into the industry (= entry) o If economic profit < 0  (negative profits = economic losses),  firms will leave the industry (= exit) o If economic profit = 0, (normal rate of  return), firms have no incentive to enter or exit 1
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The Effects of Entry  If new firms enter an industry,  o supply is increased (industry supply curve shifts to the  right)  o industry equilibrium price falls o price=demand=MR fall for each firm As a result: o firms’ excess profits are eliminated o firms make normal profits o because price falls, each firm produces less output o but industry as a whole produces more output 2
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The Effects of Exit If existing firms exit an industry,  o
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This note was uploaded on 04/02/2010 for the course ECON econ101 taught by Professor Trimarchi during the Fall '09 term at Waterloo.

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Chp11 PErfect competition notes -...

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