Long run Flashcards
A frim’s long run decisions are
whether to increase or decrease its plant size… and whether to stay in the industry or leave it
Aussumptions
entry and exit and changes in plant size are only adjustments
firms seek profits and shun losses
firms may enter and leave industry freely
new firms enter an industry in which existing firms earn an economic profit
entry and exit
firms exit an industry in which they incure an economic loss
entry and exit
economic profits daw in new firms
economic losses drive out firms
after long run equilibrium is achieved, product price will be exactly equal to, and production will occur at, each firm’s point of minimum ATC
…
frim changes plant size if by doing so, it can lower its costs and increase economic profit
…
economic profits will not occur in the long run!!
…
entry and exit of firms will affect quantity of output but will always bring proce back to equilibrium
constant cost industry
expansiion through the entry of new firms increases the prices frims in industry maust pay for resources
increasing cost industry
expansion trough entry of firms decreases price firms pay for resources
decreasing cost industry
