1 / 5

Figure VI-2.1: An Increase in Demand in an Increasing Cost Industry

Figure VI-2.1: An Increase in Demand in an Increasing Cost Industry. S SR. P. For an increase in demand: Start at P SR = P LR , Π = 0. S LR. $20. D. Q. 100K. The Market. Figure VI-2.2: An Increase in Demand in an Increasing Cost Industry. S SR. P. For an increase in demand:

spence
Download Presentation

Figure VI-2.1: An Increase in Demand in an Increasing Cost Industry

An Image/Link below is provided (as is) to download presentation Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author. Content is provided to you AS IS for your information and personal use only. Download presentation by click this link. While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server. During download, if you can't get a presentation, the file might be deleted by the publisher.

E N D

Presentation Transcript

  1. Figure VI-2.1: An Increase in Demand in an Increasing Cost Industry SSR P • For an increase in demand: • Start at PSR = PLR, Π = 0 SLR $20 D Q 100K The Market

  2. Figure VI-2.2: An Increase in Demand in an Increasing Cost Industry SSR P • For an increase in demand: • Start at PSR = PLR, Π = 0 • Increase demand • PSR > PLR, Π > 0 causes entry. SLR $35 $20 D’ D Q 100K 105K The Market

  3. Figure VI-2.3: An Increase in Demand in an Increasing Cost Industry SSR • For an increase in demand: • Start at PSR = PLR, Π = 0 • Increase demand (Subsidy) • PSR > PLR, Π > 0 causes entry. • Entry causes S to increase. • 5. So costs to increase and • P decreases until PSR = PLRand Π = 0 (back in LR equilibrium). P S’SR SLR $35 $30 $20 D’ D Q 100K 105K110K The Market

  4. Figure VI-2.6: A Decrease in Supply in an Increasing Cost Industry with Legal Entry Barriers S’SR SSR P • For a decrease in supply: • Start at PSR = PLR, Π = 0 • Short-run S decreases producing Π > 0. • Entry barrier prevents S from increasing. SLR $30 $20 D Q 80K 100K The Market

  5. Explanation of Figure VI-2.6 • (1) Market is in LR equilibrium /Social Welfare Maximum • (2) An decrease in market supply occurs because entry barrier imposed. • (3) Decreased supply causes an increase in the market price which creates positive profits (P > PLR). • (4) Positive profits would cause new entry but new entry cannot occur because of the legal entry barriers. These legal entry barriers create a Welfare Loss

More Related