CHAPTER 9 COMPETITVE INDUSTRY BLACKBOARD

CHAPTER 9 COMPETITVE INDUSTRY BLACKBOARD - ECON 306 CHAPTER...

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ECON 306 CHAPTER 9 THE COMPETITIVE INDUSTRY
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2 KEY RESULT: THERE ARE NO WINNERS IN THE LONG RUN CHANGES IN DEMAND CREATE SHORT-RUN EXCESS PROFITS OR LOSSES EXCESS PROFITS ATTRACT RESOURCES TO INDUSTRY, LOSSES DRIVE THEM AWAY THIS IS THE BASIC MECHANISM OF FREE MARKET CAPITALISM COMPETITION DRIVES FIRMS TO MIN OF LRAC AND ZERO EXCESS PROFIT
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© Charles R. Hulten 2009 3 PART I CRTS AND FREE ENTRY OF IDENTICAL FIRMS EACH FIRM PRODUCES UNDER CRTS IN LONG RUN, VRTS IN SHORT RUN THERE ARE 100 FIRMS WITH IDENTICAL COST STRUCTURES ALREADY IN THE INDUSTRY THERE IS FREE ENTRY OF FIRMS INTO AND OUT OF THE INDUSTRY AND EACH FIRM IS A “ PRICE TAKER
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© Charles R. Hulten 2009 4 TYPICAL FIRM IN INDUSTRY 0Q P LRAC = LRMC 8 4 2.00 12 ab c SRAC SRMC e 2.50 4.00 d K L b c Z 12 8 8 12 Q=8 Q=12 0 AC = 2 AC = 2 CRTS w = 1, r = 1 22 d AC = 2.5
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© Charles R. Hulten 2009 5 TYPICAL FIRM IN AN INDUSTRY OF 100 IDENTICAL FIRMS 0 D P LR SUPPLY 800 2.00 b ! SRAC LRMC ! SRMC FIRM INDUSTRY 0Q P LRAC = LRMC 8 4 2.00 12 ab c SRAC SRMC e 2.50 4.00 d
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© Charles R. Hulten 2009 6 SHORT-RUN AND LONG-RUN Q WHEN DEMAND CURVE SHIFTS TO D’ 0 D P LR SUPPLY 800 1400 2.00 1200 f b c SRAC LRMC
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CHAPTER 9 COMPETITVE INDUSTRY BLACKBOARD - ECON 306 CHAPTER...

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