Perfect Competition-LongRun

Perfect Competition-LongRun - Examples oil coal...

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Perfect Competition-LR Competitive Industry I. Long Run in a Competitive Industry The nature of long-run supply in a competitive industry depends upon the way in which costs of production vary as the industry expands or contracts. 1. Constant Cost Industry If new firms that enter are just like the old firms and prices of inputs do not rise as industry output expands we have a constant cost industry. Examples: taxicabs, gasoline stations, retailing in a local market.) The long-run industry supply curve is a horizontal line. 2. Increasing Cost Industry If new firms that enter have higher costs than firms that are initially in the industry or if prices of inputs rise as the industry expands, then we have an increasing cost industry.
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Unformatted text preview: Examples: oil, coal, agricultural products The long-run supply curve is upward sloping. X. More on Zero Economic Profits In the increasing cost industry, where did the profits go when demand rose and price increased? Don't the firms using the mines with low cost coal earn economic profits? Example: Mine A: Mine B: Revenue $100,000 $100,000 Labor, machinery, management, opportunity cost of capital 80,000 60,000 Lease for mine 20,000 20,000 Economic Profits 0 20,000 Would you rather operate Mine A or Mine B? © Bryan L. Boulier, 2011. All rights reserved....
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