Lecture11 - Lecture 11: Competition in the Long Run Perlo...

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Lecture 11: Competition in the Long Run Perlo/ Chapter 8 Vladimir Petkov VUW 23 April 2009 Vladimir Petkov (VUW) Lecture 11: Competition in the Long Run 23 April 2009 1 ± 23
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Two big di/erences between the long run and the short run. 1 curves are the long-run cost curves. 2 entry and exit. between total revenue and long-run costs. Long-run output decision equal to long-run marginal cost. p = LRMC ( q ) Long-run shutdown decision . In the long run, all costs are variable, π < 0 . Vladimir Petkov (VUW) Lecture 11: Competition in the Long Run 23 April 2009 2 ² 23
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The Long-Run Firm Supply Curve If p > min LRAC LRMC curve. If p < min LRAC Vladimir Petkov (VUW) Lecture 11: Competition in the Long Run 23 April 2009 3 / 23
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The Role of Entry and Exit This will shift the short-run industry supply to the right and the market-clearing price will fall. This will shift the short-run industry supply to the left and the market-clearing price will increase. Long-run equilibrium condition . For the market to be in a long-run economic Otherwise there will be entry or exit, so the market-clearing price will keep changing. Vladimir Petkov (VUW) Lecture 11: Competition in the Long Run 23 April 2009 4 / 23
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The Long-Run Industry Supply Curve First, assume that we have a constant cost industry . To obtain the long-run industry supply curve, we shift the demand curve and trace out the long-run equilibrium points. In a constant cost industry, only one price is consistent with zero p = min LRAC . So the long-run industry supply curve would be horizontal (perfectly elastic) at p . Vladimir Petkov (VUW) Lecture 11: Competition in the Long Run 23 April 2009 5 / 23
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The long-run industry supply curve of a constant cost industry is shown below. p
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Lecture11 - Lecture 11: Competition in the Long Run Perlo...

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