H Distinguish between SR and LR profit max

Question 1

Distinguish between SR and LR profit max

Answer 1

Profit max rule for perfect comp or imperfect Prod. Q where MR = MC to max prof. long as P at that Q > AVC

Perfect comp operation choice in LR: Operate at min avg. Cost. Firms increase scale in search of profits. SRATC P1 —> P2 reduces SRATC as scale increases

Perfect Comp: LRATC> P;Economics Loss; Exits; Market Supply is reduced; Market prices are increased;Economic profit, then new firms enter or existing firms increase in size;Price is forced down