ECON 1100 1nd Edition Lecture 22 Outline of Last Lecture I. Long-Run Cost CurvesOutline of Current Lecture I.ScaleII.Enter/Exit Market a. Short-Run competitive equilibriumb. Long-Run competitive equilibriumCurrent LectureI. Scale(L/S)RATC – long/short-run average total cost curveSRMC – short-run marginal cost(I/D)RTS – increase/decrease return to scaleIn long run have choicesHigher cost/unit for smaller firmsIf all companies are like the above graph, then all would be mid-sizedAll companies being about the same size is not possible in the real worldCRTS – constant return to scaleSecond & third curves compete equally because of having the same costFirms choose size at bottom of LRATC curve – costs are lowerII. Enter/Exit Market – Short-Run competitive equilibrium These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.Profit maximizing rule = P = MCSRATC -> explicit & implicit costsNo barriers to entry in competitivemarketSR & LR can’t be same because supply differentShifts in supply curve due to new firms entering & old exitingSupply in SR comes from adding firms which increases outputsNew enter = price decreasesOld exit = price increaseStop when don’t earn more than normal rate of returnSame good but different choicesLong-run competitive equilibrium III. Enter/Exit Market – Long-Run competitive equilibriumEconomic profits cover short & long run costsDoesn’t mean 0 acct profitEveryone getting paid, just not extraShift due to entry of new firms No economic profit @ long-run equilibriumP=MC => profit maximizing choice of qP= min of SRATC => entry/exit (increase when enter, decrease when exit)P= min of LRATC => choice of optimal scaleCrossing of SRMC, SRATC, LRATC, d: P=MC=min of SRATC = min of LRATCIf 1 doesn’t equal then not at equilibriumDemand changes, later supply; SR then LRMust come back to equilibriumConstant Cost Industry – cost curves don’t shift as
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