week 7 Flashcards
what is the total economic cost?
sum of opportunity costs of all inputs including implicit costs
implicit cost of capital is the
opportunity cost of financial capital invested in firm
what are the possibilities of financing K investment?
what is the long run break even point?
P= minimum of ATCLR
firms earns zero economic profits or “Normal economic profits” i.e. revenues cover all economic costs and provides “normal” rate of return on financial/physical capital investments
what does firm look like in the long run?
entry and exit of firms
what happens in the long run?
- at the firm level, firms can alter K input
- at the market level, firms may exit or enter the industry
when will new firms enter an industry?
when wil EXISTING firms exist an industry?
what does a firm making profits in the short run look like?
what does a firm in the short run making loss look like?
when is an industry in long run equilibrium?
when firms have no incentive to enter or exist i.e. P=min of ATCLR
two desirable features of LR equilibrium
- ATCLR is minimised –> goods are produced at lowest costs which is also the price customers pay
- capital is allocated efficiently
show how market influences typical firm in the long run
Short run impact of demand increase
show short run impact of demand increase
demand increase in the long run
- more firms in the industry
- LR output > SR output
- Price back to min ATCLR and zero economic profits
demand increase in the long run SHOW
what is the short run impact of demand decrease?
what is the LR impact of demand decrease?
entry and exit of firms will
end until price back to minimum of long run ATC
what is a constant-cost industry?
LR average costs remain unchanged as industry output rises
what is external diseconomies of scale
factors outside control of a firm that raises its costs as industry output increases
what is external economies of scale?
showwhat SLR looks like in the long run
what does SLR look like for diseconomies of scale
D increases more than S
as industry Q rises, cost of inputs rise
show what SLR looks like for economies of scale
what is a monopoly
a market with a single seller with no close substitutes
high barriers of entry
why one seller in certain markets?
economies of scale
describe relationship between MR and D for monopoly
MR is twice as steep as D
MR
AR= P
show profits for a monopolist
show Deadweight loss for a monopolist
monopolist produces too little. Why?
