10/11/20101THE UNIVERSITY OF BRITISH COLUMBIAManagerial Econ: Class 10 – Oct. 12 The Invisible Hand of Competition1.Perfect Competition in the Long Run2.Consumer Surplus3.Producer Surplus4.Perfect Competition Maximizes Total Surplus5.Movie Clip6.Introduction to Monopoly7.Summary and ConclusionTHE UNIVERSITY OF BRITISH COLUMBIALong Run Equilibrium for Perfect CompetitionAssume 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.
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