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Unformatted text preview: When marginal cost is less than average cost, an expansion of output will lead to a reduction in average cost. When marginal cost is greater than average cost, an expansion of output will lead to an increase in average cost. Diseconomies of Scale Minimum Efficient Scale: the lowest level of output at which economies of scale are exhausted, S=1 When Elasticity of Demand =1, the total consumer expenditure for the product is constant. 4.2 Sunk Cost and Market Structure if there are positive sunk costs associated with entry, then firms must earn positive profits in each subsequent period of actual operation to cover those entry costs. Firms will stop entering the industry when the profit from operating each period covers the initial sunk cost that entry requires....
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- Summer '08