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Unformatted text preview: ect price and profits. • The potential benefits that incumbent firms can enjoy if they can successfully limit entry into the industry. Industry Adjustment to A Decrease In Demand • The analysis outlined for an increase in demand can be reversed to explain industry adjustment to a decre4ase in demand. • Some firms in the industry will decrease production because marginal revenue intersects marginal cost at a lower level of output and some firms will shut down. • In the Long Run, some firms will leave the industry because price is below average total cost and they are suffering continual losses. As firms leave the industry, the market supply shifts leftward, and the equilibrium price rises. • The equilibrium price will rise until long-run competitive equilibrium is reestablished and at zero economic profits Differences in Costs, Differences in Profits: Now You See It, Now You Don’t At ATC1 for both farmers, Cordero earns profits and Hancock does not. Cordero earns profits because the land he farms is of higher quality (more productive) t...
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This note was uploaded on 09/16/2012 for the course ECONOMICS 90 taught by Professor Srinivas during the Spring '12 term at SMU.

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