Lecture_notes_perfect_comp

Lecture_notes_perfect_comp - persist. These excess returns...

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Perfect Competition. 1. Short-Run Competitive Equilibrium. The short-run market supply curve is the horizontal summation of the short-run supply curves of individual producers. The short-run equilibrium price and quan- tity are determined by the intersection of the short-run market supply curve and the (short-run) demand curve.
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2. Long-Run Competitive Equilibrium. Entails entry and exit of firms . If cost curves of (extant and potential) firms are identical, the long-run market supply curve is horizontal (constant-cost industry). If cost curves of (extant and potential) firms are heterogeneous, the long-run mar- ket supply curve is upward sloping (increasing- cost industry). The long-run equilibrium price and quan- tity are determined by the intersection of the long-run market supply curve and the (long-run) demand curve.
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3. Heterogeneous Cost Curves and Rents. If cost curves are identical, excess (eco- nomic) profits are competed away by exit and entry of firms. If cost curves are heterogeneous, excess (economic) profits of low-cost firms may
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Unformatted text preview: persist. These excess returns are called rents. • In general, a rent is a payment for a fac-tor of production over and above what is necessary to attract the factor into the industry— i.e. , over and above the op-portunity cost of the factor. • The classic example of a rent-earning factor is land, as in the Ricardian theory of rent (David Ricardo and Thomas Malthus). 4. External Economies and Diseconomies. External economies occur when the ex-pansion of the industry lowers the cost curves of all firms in the industry. External diseconomies occur when the ex-pansion of the industry raises the cost curves of all firms in the industry. 5. Supply Elasticities. Short-run elasticity of supply : ± S ( P ) = dS ( P ) dP P S ( P ) , or, in discrete terms, ± S ( P ) = Δ S ( P ) Δ P P S ( P ) . Long-run elasticity of supply : ± LS ( P ) = dLS ( P ) dP P LS ( P ) , or, in discrete terms, ± LS ( P ) = Δ LS ( P ) Δ P P LS ( P ) . • Elasticity of supply and shifts in de-mand....
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This note was uploaded on 10/05/2010 for the course ECON 104A taught by Professor Thomas during the Spring '10 term at UC Riverside.

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Lecture_notes_perfect_comp - persist. These excess returns...

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