Microeconomics · free preview
Entry, Exit and the Long Run
Economic profit recruits entrants and economic loss drives exit until the price settles at minimum average cost, where surviving firms earn exactly a normal return and the long-run industry supply runs flat.
1. Profit is a signal
Profit is a signal
2. The destination, zero profit
The destination, zero profit
3. The long-run supply curve
The long-run supply curve
4. When entry is costly anyway
When entry is costly anyway
5. The mechanism
Firms in a competitive industry are earning positive economic profits of 3 dollars per unit. What happens over the long run if entry is free?
6. Zero economic profit means
In long-run competitive equilibrium, firms earn zero economic profit. Which statement is correct?
7. The long-run price
The typical firm in a competitive industry has minimum average total cost of 4 dollars per unit at its efficient scale of 90 units. If long-run market demand supports 900 units per period, compute the long-run equilibrium price in dollars and write the number.
8. The entry sequence
Firms in a competitive industry earn positive economic profit of 3 dollars per unit. What unfolds?
9. Zero profit, healthy firms
In long-run competitive equilibrium firms earn zero economic profit. Why do they stay in the industry?
10. The long-run price
The typical firm in a competitive industry has a minimum average total cost of 5.50 dollars per unit. Compute the long-run equilibrium price in dollars, and write the number.
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