Microeconomics Show graphically and explain the adjustment process for perfect competition in the long run to an increase in demand, a decrease in demand, and a change in technology.Increase in demand:P $ MC S1 ATC AVCP2 P2 MR2, D2P1 P1 MR, D D2 Q D1, QTofu Industry q1 q2One producer of tofuShaded area = profit. Profit bad In PC because new firms will joinAn increase in demand leads to an increase in supply which brings profit back down to zero. (D2)You would earn your opportunity cost (different from breaking even). You can't make over your opportunity cost in the long run because that would serve as a green light to other firms to join the market.P S1 $ MCATCS2 AVCP1 P1P2 P2 Q1 Q2 q2 q1An increase in new technology causes everything to move to the right /southeast(MC, ATC, AVC). Price goes down, supply goes up, quantity goes up. Demand stays the same.This is the magic point. Where MR = MC is the profit maximizing level of output. MC q1
View Full Document
Unlocking...