Econ 201 1st Edition Lecture 35Outline of Last Lecture 1.Firms as Suppliers under Perfect Competition2.Revenue Concepts under Perfect CompetitionOutline of Current Lecture 1.Long Run Supply with a Positive Slope2.Efficiency of Long Run Competitive Equilibrium(if no Externalities)Current LectureLong Run Supply with a Positive Slope1. As market adjusts, input prices may change, shifting the position of firms’ average total cost.Increasing cost industry: Expansion raises input prices and AC. Long run supply will have a positive slope.• Constant cost industry: Expansion has no effect on input prices. Long run supply will be horizontal line – perfectly elastic.2. Higher cost producers enter the market only with a higher price. Long run supply will have a positive slope. Lower cost producers may enjoy continued positive profit.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.Efficiency of Long Run Competitive Equilibrium(if no Externalities)• Allocative Efficiency ~ Correct product mix: MB = MC.– From Demand: Consumers choose purchase so MB = P*.– From Supply: Firms choose output so P* = MC.– Thus: MB = P* = MC Efficiency condition prevails. • Productive Efficiency ~ Output produced at least cost.– Firms minimize their individual cost as part of profit maximization.– Competitive pressures lead to efficient firm sizes so output occurs at minimum LRAC.• Changes in Demand (Benefit) or Supply (Cost) lead to market adjustments that reestablish efficiency under new conditions of social need or production
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