Market Structure and Long-run Equilibrium Flashcards
Long-run forces tend to
erode profit
High profit draws attention to the value that firms create
and new entrants will try to capture some of the value
The demand curve for the output of a perfectly competitive firm
is flat (perfectly elastic)
At the point where capital stops flowing into the industry
it has reached long-run equilibrium
The length of the short run depends on
how quickly assets can move into or out of the industry
In the long run, no competitive industry earns
more than the average rate of return
A competitive firms can earn positive or negative profit in the short run but only until
entry or exit occurs
In the long-run equilibrium, a firms economic profit is zero,
break even, and price equals average costs
Profit exhibits a mean reversion where the mean
is zero economic profit
Positive profits attracts entry and negative profits
lead to exits
The indifference principle says that if an asset is mobile,
the in the long run equilibrium, the asset will be indifferent about where it is used
Compensating wage differentials reflect differences in
the inherent attractiveness of various professions
The forces of competition allocates resources to where
they are most highly valued and allow the economy to adapt rapidly to shocks
In equilibrium, differences in the rate of return
reflect differences in the riskiness of an invesment
Monopolies have attributes that
protect them from the forces of competition
