Class 10-2010

Class 10-2010 - 10/11/2010 Managerial Econ: Class 10 Oct....

Info iconThis preview shows pages 1–5. Sign up to view the full content.

View Full Document Right Arrow Icon
10/11/2010 1 THE UNIVERSITY OF BRITISH COLUMBIA Managerial Econ: Class 10 – Oct. 12 The Invisible Hand of Competition 1. Perfect Competition in the Long Run 2. Consumer Surplus 3. Producer Surplus 4. Perfect Competition Maximizes Total Surplus 5. Movie Clip 6. Introduction to Monopoly 7. Summary and Conclusion THE UNIVERSITY OF BRITISH COLUMBIA Long Run Equilibrium for Perfect Competition Assume all firms are symmetric. Then, In the long run, firms must operate where P = AC (due to free entry) and where P = MC (due to profit maximization). This can only happen at the minimum of the AC curve, where MC = AC = P. AC includes “normal profit”. In long run equilibrium competitive firms earn only “normal profits” no “excess” or “abnormal” profit.
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
10/11/2010 2 THE UNIVERSITY OF BRITISH COLUMBIA p , $ per unit 150 LRAC LRMC (a) Firm q 10 S 1 0 p , $ per unit (b) Market Q Long-run market supply 10 0 LR market supply may be perfectly elastic due to entry THE UNIVERSITY OF BRITISH COLUMBIA Competitive Equilibrium with Heterogeneous firms 2 of 4 If firms differ (have different average cost curves) the marginal firm must satisfy P = AC. Firms with lower costs will make above- normal profits. This situation leads to upward sloping supply. Under perfect competition the supply curve is the industry marginal cost curve.
Background image of page 2
10/11/2010 3 THE UNIVERSITY OF BRITISH COLUMBIA Upward Sloping LR Supply The long run market supply curve may be upward sloping if firms differ or if increases in output bid up input prices. THE UNIVERSITY OF BRITISH COLUMBIA Clicker Question 1 This diagram is consistent with the following: a. An increase along the supply curve as price rises. b. An increase in output causing an increase in marginal cost. c. An increase in output due to more output per firm and more firms. d. All of the above. e. None of the above.
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
10/11/2010 4 THE UNIVERSITY OF BRITISH COLUMBIA Clicker Question 2 2 of 4 Suppose you are told that an industry is in a perfectly competitive long run equilibrium. All firms are identical and each firm has a long run average cost function given by AC = 120 – 20q + q 2 . Recall that each firm must be at the minimum of its AC curve and must earn zero profits. a) The price is less than 20. b) The price is more than 20. c) Each firm produces an output of 10.
Background image of page 4
Image of page 5
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 13

Class 10-2010 - 10/11/2010 Managerial Econ: Class 10 Oct....

This preview shows document pages 1 - 5. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online