Chapter 17: Industry supply

Question 1

free entry

Answer 1

In most industries, there are no restrictions against new firms entering the
industry. In that case, the industry exhibits free entry. In some industries,
there are barriers to entry.

Question 2

Long-run industry supply

Answer 2

• Firms are able to adjust their fixed factors.
• Firms can exit or enter an industry

Question 3

What are the possible equilibria in the long run?

Answer 3

• If firms enter the industry when positive profits are made, then the relevant
  intersection is the lowest price consistent with nonnegative profits (p
  0
  ).
• Rule out all points that lie below p
  ∗
  .
• Since demand is downward sloping, rule out points which if any downward
  sloping demand passes through, it would also intersect a supply associated
  with a larger number of firms (example: point A).
• So every point on the one-firm supply curve that lies to the right of the
  intersection of the two-firm supply curve and the line determined by p
  ∗
  cannot be consistent with the long-run equilibrium.
• The parts of the supply curves on which the long-run equilibrium can
  actually occur are indicated by the black line segments in Figure 4.