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lec20 - Various Cost IndustryDifferent Possible Industry...

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Unformatted text preview: 2010-05-131Various Cost IndustryDifferent Possible Industry Outcomes•Constant Cost Industry•Increasing Cost Industry•Decreasing Cost IndustrySuppose Constant Cost Industry…•Consider an initial equilibrium with zero profits, and then market demand for product increases:PSLR if no entryQDLRQPD1LRPPFirmMarketSLR if no entryACLRMCLRSLR after entry of Long-Run Equilibrium with Entry (and Exit): Constant Cost IndustryqQD1LRQEntry and exit keeps price to minimum required for zero profitfixed number of firmsPPSLR with entry & exitq*Q1DLRLong Run Entry & Exit:Constant Cost Industry$/unitQIndustrySLR with entry and exitPEntry and exit keeps price to minimum required for zero profitSuppose Increasing Cost Industry…•Consider an initial equilibrium with zero profits, and then market demand for product increases:PSLR if no entryQDLRQPD1LR2010-05-132Firm Costs in an Increasing Cost Industry$/unitMCLRACMC1LRAC1LRP1qfirmACLRPq1q1Entry increases input prices in an increasing cost industrySupply Curve of Increasing Cost Industry...
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