Principles of Economics- Mankiw (5th) 301

Principles of - CHAPTER 14 FIRMS IN COMPETITIVE MARKETS 311 Thus for these two reasons the long-run supply curve in a market may be upward sloping

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CHAPTER 14 FIRMS IN COMPETITIVE MARKETS 311 Thus, for these two reasons, the long-run supply curve in a market may be up- ward sloping rather than horizontal, indicating that a higher price is necessary to induce a larger quantity supplied. Nonetheless, the basic lesson about entry and exit remains true. Because firms can enter and exit more easily in the long run than in the short run, the long-run supply curve is typically more elastic than the short-run supply curve. QUICK QUIZ: In the long run with free entry and exit, is the price in a market equal to marginal cost, average total cost, both, or neither? Explain with a diagram. CONCLUSION: BEHIND THE SUPPLY CURVE We have been discussing the behavior of competitive profit-maximizing firms. You may recall from Chapter 1 that one of the Ten Principles of Economics is that rational people think at the margin. This chapter has applied this idea to the competitive firm. Marginal analysis has given us a theory of the supply curve in a competitive
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This note was uploaded on 07/30/2010 for the course ECON 120 taught by Professor Abijian during the Spring '10 term at Mesa CC.

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