Econ ch 11 - Custom Scholars
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Econ ch 11

question
The Long Run in Pure Competition
answer
-Firms can expand or contract capacity
-Firms can enter or exit industry
question
Profit Maximization in the Long Run
answer
-Easy entry and exit
-->The only long-run adjustment we consider

-Identical costs
-->All firms in the industry have identical costs

-Constant-cost industry
-->Entry and exit of firms do not affect resource prices
question
Long Run Adjustment Process
answer
Adjustment process in pure competition
Firms seek profits and shun losses
Firms are free to enter or to exit
Production will occur at firm's minimum average total cost
Price will equal minimum average total cost
question
Long Run Equilibrium
answer
--Entry eliminates profits
Firms enter
Supply increases
Price falls

--Exit eliminates losses
Firms leave
Supply decreases
Price rises
question
Constant-cost industry
answer
Entry/exit does not affect LR ATC
Constant resource prices
Special case
question
Increasing-cost industry
answer
Most industries
LR ATC increases with expansion
Specialized resources
question
Pure Competition and Efficiency
answer
In the long run, efficiency is achieved
--Consumer surplus and producer surplus are maximized
question
Productive Efficiency
answer
Producing where P = minimum ATC
question
Allocative Efficiency
answer
Producing where P = MC
P= MC= minimum ATC
question
Dynamic Adjustments
answer
Purely competitive markets will automatically adjust to:
Changes in consumer tastes
Resource supplies
Technology
Recall the "Invisible Hand"
question
Purely competitive markets will automatically adjust to:
answer
1 Changes in consumer tastes
2 Resource supplies
3 Technology
question
Technological Advance and Competition
answer
Entrepreneurs would like to increase profits beyond just a normal profit
Decrease costs by innovating
New product development
question
Creative Destruction
answer
Creation of new products and methods may destroy the old products and methods
--result of Competition and innovation
question
Patents
answer
Patents give the inventor exclusive rights to market and sell their product for 20 years
May hinder "creative destruction"
Eliminate patents on complicated, hard to copy products
Speed up innovation by increasing the opportunities of potential new competitors
1 of 14
question
The Long Run in Pure Competition
answer
-Firms can expand or contract capacity
-Firms can enter or exit industry
question
Profit Maximization in the Long Run
answer
-Easy entry and exit
-->The only long-run adjustment we consider

-Identical costs
-->All firms in the industry have identical costs

-Constant-cost industry
-->Entry and exit of firms do not affect resource prices
question
Long Run Adjustment Process
answer
Adjustment process in pure competition
Firms seek profits and shun losses
Firms are free to enter or to exit
Production will occur at firm's minimum average total cost
Price will equal minimum average total cost
question
Long Run Equilibrium
answer
--Entry eliminates profits
Firms enter
Supply increases
Price falls

--Exit eliminates losses
Firms leave
Supply decreases
Price rises
question
Constant-cost industry
answer
Entry/exit does not affect LR ATC
Constant resource prices
Special case
question
Increasing-cost industry
answer
Most industries
LR ATC increases with expansion
Specialized resources
question
Pure Competition and Efficiency
answer
In the long run, efficiency is achieved
--Consumer surplus and producer surplus are maximized
question
Productive Efficiency
answer
Producing where P = minimum ATC
question
Allocative Efficiency
answer
Producing where P = MC
P= MC= minimum ATC
question
Dynamic Adjustments
answer
Purely competitive markets will automatically adjust to:
Changes in consumer tastes
Resource supplies
Technology
Recall the "Invisible Hand"
question
Purely competitive markets will automatically adjust to:
answer
1 Changes in consumer tastes
2 Resource supplies
3 Technology
question
Technological Advance and Competition
answer
Entrepreneurs would like to increase profits beyond just a normal profit
Decrease costs by innovating
New product development
question
Creative Destruction
answer
Creation of new products and methods may destroy the old products and methods
--result of Competition and innovation
question
Patents
answer
Patents give the inventor exclusive rights to market and sell their product for 20 years
May hinder "creative destruction"
Eliminate patents on complicated, hard to copy products
Speed up innovation by increasing the opportunities of potential new competitors
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