ECON 201 1st Edition Lecture 10I. Market and Firms in a Competitive Economy A.) Long – run competitive equilibrium-- Always start here (home)B.) Suppose Demand Increases -- Short-run questions1. What happens to market price?i. Goes up2. What happens to market quantity?i. Goes up3. What happens to firm level output?i. MR = MC (always start here)ii. Goes up4. What happens to firm level profits in the short-run?i. Goes up ii. ATC doesn’t move5. How does the number of firms change?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.i. In the short-run the number of firms does not change- Long-run questions (shock: firms can enter and exit)6. What happens to the number of firms?i. Increases 7. What happens to the firm profits? (as more firms participate)i. Return to 0 8. What happens to firm level output relative to the short-run equilibrium?i. MR = MCii. Each firm produces less relative to the short-run9. What happens to firm level output relative to the initial long-run equilibrium?i. Did not change 10. What happens to market quantities?i. Any market will equilibrate when D = Sii. Demand shifted to the right then in long-run supply shifted to the rightiii. Quantity went up11. What happens to the market price relative to its initial long-run equilibrium?i. Profit goes back to 0ii. Changes nothing it goes right back where it was initially C.) Suppose there is a reduction in demand -- MR = MC- Firm level output drops- Price went down but cost stays the same - Making negative profits - Short-run the number of firms do not change o Can’t break contracts or leases (have to pay fixed cost in short-run)o Can make negative profits- Supply shifts left- Can ramp production up to their original levels** For exam it will be going through the short-run and long-run market
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