Long run equilibrium of a perfectly competitive industry
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1- characterize the long run equilibrium of a perfectly competitive industry in which average costs are U-shaped as output increases, under both restricted and free entry.
2-Discuss the senses in which a perfectly-discriminating monopolist is efficient or inefficient.
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Solution Summary
This solution discusses the long run equilibrium of a perfectly competitive industry in which average costs are U-shaped as output increases, under both restricted and free entry. It discusses also the senses in which a perfectly-discriminating monopolist is efficient or inefficient.
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1- characterize the long run equilibrium of a perfectly competitive industry in
which average costs are U-shaped as output increases, under both restricted and
free entry.
Answer:
U-shaped curve shows how average costs vary with the amount of output. As output increases, so average costs fall, then they start to rise again because marginal costs increase as output increases. This gives a typical curve in the shape of a U.
In the long run, the market price is determined solely by cost considerations, P = min(ATC).
If we have P > min(ATC), there are profit opportunities, new firms ...
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