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    Long term equilibrium

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    Assume a competitive industry long-run equilibrium firm's industry earning normal profits. Now assume that production technology improves such that average total costs decline by $5 a unit. Describe the process this industry will go through as it moves to long term equilibrium.

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    First, the companies in this industry begins to see profits increasing due to the decline in production costs. Since there are no barriers to entry in perfect competition, we expect that new firms will enter this industry. Attracted by the high ...

    Solution Summary

    Process that an industry undergoes as it moves to long term equilibrium