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University of Hawai‘i at Mānoa Department of Economics

University of Hawai‘i at Mānoa Department of Economics. ECON 130 (003): Principles of Economics (Micro) http://www2.hawaii.edu/~lindoj Gerard Russo Lecture #22 Thursday, April 1, 2004. LECTURE 22. The Perfectly Competitive Firm in the Long-Run

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University of Hawai‘i at Mānoa Department of Economics

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  1. University of Hawai‘i at MānoaDepartment of Economics ECON 130 (003): Principles of Economics (Micro) http://www2.hawaii.edu/~lindoj Gerard Russo Lecture #22 Thursday, April 1, 2004

  2. LECTURE 22 • The Perfectly Competitive Firm in the Long-Run • The Perfectly Competitive Industry in the Long-Run: Long-Run Supply • Constant-Cost Industry • Increasing-Cost Industry • Decreasing-Cost Industry

  3. Perfectly Competitive Firm Perfectly Competitive Industry $/q Long-Run Equilibrium: P=AR=MR=MC=ATC=LATC $/q MC ATC S0 LATC P0 D0 0 q0 Q0 (thousands) (milllions)

  4. Perfectly Competitive Firm Perfectly Competitive Industry $/q New Short-Run Equilibrium: P=AR=MR=MC>ATC>LATC $/q MC S0 ATC P1 LATC P0 D1 D0 0 q0 q1 Q0 Q1 (thousands) (milllions)

  5. Perfectly Competitive Firm Perfectly Competitive Industry $/q CONSTANT-COST INDUSTRY $/q MC S0 LATC S1 ATC P1 P0 LRS D1 D0 0 q0 q1 Q0 Q1 Q2 (thousands) (milllions)

  6. Perfectly Competitive Firm Perfectly Competitive Industry $/q New Short-Run Equilibrium: P=AR=MR=MC>ATC>LATC $/q MC S0 ATC P1 LATC P0 D1 D0 0 q0 q1 Q0 Q1 (thousands) (milllions)

  7. Perfectly Competitive Firm Perfectly Competitive Industry New Long-Run Equilibrium: Entry Causes Price to Fall and Costs to Rise $/q MC1 $/q Price goes down LATC1 MC0 S0 ATC1 S1 P1 ATC0 LATC0 P2 P0 Costs go up. D1 D0 0 q0 q1 Q0 Q1 Q2 (thousands) (milllions) q2

  8. Perfectly Competitive Firm Perfectly Competitive Industry INCREASING-COST INDUSTRY $/q MC1 $/q Price goes down LATC1 MC0 S0 ATC1 S1 P1 ATC0 LATC0 LRS P2 P0 Costs go up. D1 D0 0 q0 q1 Q0 Q1 Q2 (thousands) (milllions) q2

  9. Perfectly Competitive Firm Perfectly Competitive Industry $/q $/q MC S0 ATC LATC P0 D0 0 q0 Q0 (thousands) (milllions)

  10. Perfectly Competitive Firm Perfectly Competitive Industry $/q $/q MC S0 ATC LATC P1 P0 D1 D0 0 q0 q1 Q0 Q1 (thousands) (milllions)

  11. Perfectly Competitive Firm Perfectly Competitive Industry New Long-Run Equilibrium: Entry Causes Price to Fall and Costs to Fall $/q $/q MC0 LATC0 D1 S0 ATC0 P1 MC1 LATC1 P0 ATC1 S1 P2 D0 0 q0 q1 Q0 Q1 Q2 (thousands) (milllions)

  12. Perfectly Competitive Firm Perfectly Competitive Industry $/q $/q LATC0 D1 MC0 S0 ATC0 P1 MC1 LATC1 P0 S1 ATC1 P2 D0 0 q0 q1 Q0 Q1 Q2 (thousands) (milllions)

  13. Decreasing-Cost Industry $/q Perfectly Competitive Industry Perfectly Competitive Firm $/q LATC0 D1 MC0 S0 ATC0 P1 MC1 LATC1 P0 S1 ATC1 P2 D0 0 q0 q1 Q0 Q1 Q2 (thousands) (milllions)

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