Perfect Competition in the Long Run

Perfect competition in the long run

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Unformatted text preview: Perfect Competition in the Long Run Handout Summary of the firm in long run equilibrium 1. In the long run, every competitive firm will earn normal profit, that is, zero profit. 2. In the long run, every competitive firm will produce where price (P) is equal to marginal cost (MC), that is where P = MC. 3. In the long run, every competitive firm will produce where price (P) is equal to the minimum of short run average cost (SRAC), P = SRAC. This implies zero economic profit. 4. In the long run, every competitive firm will produce where price (P) is equal to the minimum of long run average cost (LRAC = ATC), P = minimum LRAC. This implies that no identical firms will want to enter or exit. 5. Putting it all together: P = MC = min SRAC = min LRAC 6. Graphically this gives Long Run Equilibrium $ SRAC SRMC LRAC P = MR = Demand LRMC q* Q Data Table for Competition in the Long Run y 0.00 1.00 2.00 3.00 4.00 5.00 6.00 7.00 8.00 9.00 10.00 11.00 12.00 13.00 14.00 15.00 16.00 17.00 18.00 19.00 20.00 22.00 23.00 25.00 26...
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This note was uploaded on 01/03/2011 for the course COMM 290 taught by Professor Brian during the Winter '09 term at The University of British Columbia.

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