L08 - ECO 100Y ECO 100Y I t d ti t I t d ti t Introduction...

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

View Full Document Right Arrow Icon

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

View Full DocumentRight Arrow Icon

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

View Full DocumentRight Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: ECO 100Y ECO 100Y I t d ti t I t d ti t Introduction to Introduction to Economic Economic Economics Economics Lecture 8: Lecture 8: Long Long Run Competitive Run Competitive Long Long-Run Competitive Run Competitive Equilibrium Equilibrium Gustavo Indart Slide 1 Competitive Industry Adjustment Competitive Industry Adjustment i th L R i th L R in the Long Run in the Long Run ! The quantity of capital is fixed in the short run for both existing and potential firms in the industry " That is, the total capital employed in the industry is fixed in the short run in the short run " Therefore, the number of firms in the industry is fixed in the short run ! In the long run, firms can change the level of capital and can enter or exit the industry ! The long run industry adjustment thus implies " Change in the number of firms Gustavo Indart Slide 2 " Changes in the scale of production of each firm Competitive Industry Adjustment Competitive Industry Adjustment in the Long Run in the Long Run (continued) (continued) ! Why would the number of firms change in the long ! Why would the number of firms change in the long run? " If existing firms in the industry are making economic profits, new firms will enter the industry in the long run " If existing firms in the industry are making economic losses, some firms will exit the industry in the long run run ! The assumption of profit maximization implies that Gustavo Indart Slide 3 the number of firms will change in the long run Competitive Industry Adjustment Competitive Industry Adjustment in the Long in the Long-Run Run (continued) (continued) Wh ld fi h i d i i i h ! Why would a firm change its production capacity in the long run? " Firms can increase profits in the long run through an " Firms can increase profits in the long run through an increase or decrease in their production capacity " As long as a different production capacity can produce an output at a lower cost, firms will change the size of their plants ! The assumption of profit maximization implies that the production capacity of the firm will change in the long run Gustavo Indart Slide 4 long run Change in the Number of Firms...
View Full Document

Page1 / 23

L08 - ECO 100Y ECO 100Y I t d ti t I t d ti t Introduction...

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