Competitive equilibrium 2

Question 1

What are the short run equilibrium concepts?

Answer 1

SR variables are fixed ( Capital and no. of firms)

Question 2

What are the key features of SR equilibrium? Given and condiditons

Answer 2

Given - Fixed no.of firms, fixed K, market demand, cost curves (SRMC)
Conditions - Firms produce at price equilibium SRMC, market clears at no.of firms x equilibrium pricee

Question 3

Outcomes of SR competitive equilibrium

Answer 3

• P and Q are determined by SR demand and supply
• Firms earn profit (equilibrium p is higher than SRAC)

Question 4

What are the long run concepts in competitive equilibrium?

Answer 4

Allows all variables to adjust

Question 5

What are the key features of LR competitive equilibrium

Answer 5

Firms can enter and exit the market
N = endogenous
Adjust capital to minimise costs (capital is endogenous)

Question 6

What are the conditions for LR competitve equilibrium

Answer 6

P = MC
Market clears at Firms x equilibirum
0 economics profit ( P equilibium = LRAC)
Cost minimization (LRAC = SRAC)
outcomes - 0 profit in LR as p minim = minimum LRAC

Question 7

What is the 2 long run adjustment processes

Answer 7

1. Profit in SR - more firms will enter, increase supply, decrease in price, firms will adjust capital to minimize cost
2. Equilibium restered when p = LRAC = LRMC, no firms needs to match demand

Question 8

What can restrict entry into markets

Answer 8

Technology, resources or regulations