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Unformatted text preview: Perfect Competition-Equilibrium Competitive Industry I. Equilibrium in a Competitive Industry VII. Equilibrium in a Competitive Industry 6 Equilibrium occurs when no firms have incentives to change their actions. That is, no firm has an incentive to produce more or less output given its current size plant, no firm has incentive to What smaller plant, and no firm has an incentive to enter (Say the price build a bigger orhappens if the price of an input changes?or exit the industry. of labor falls.) Conditions: 1. No firm has incentive to produce more or less output: P = MR = short-run MC 2. No firm has incentive to produce more or less output by building a bigger or smaller 7 Application: Allocation of Production among Multiple Plants Yet plant:another approach. Maximize output for each level expenditures. P = MR = long-run MC Rearrange Equation (1) as:
3. No firm has incentive to enter or exit the industry: P = long-run AC Firms have zero economic profits; they earn a normal rate of return. (3) or, maximum output, given expenditures, is obtained when the marginal product of an input per dollar spent on the input is the same. © Bryan L. Boulier, 2011. All rights reserved. ...
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