Long-Run Industry Supply In the long- run every firm now in the industry is free to exit and firms now outside the industry are free to enter The industry's long- run supply function must account for entry and exit as well as for the supply choices of firms that choose to be in the industr How is this done?
Long-Run Industry Supply In the long-run every firm now in the industry is free to exit and firms now outside the industry are free to enter. The industry’s long-run supply function must account for entry and exit as well as for the supply choices of firms that choose to be in the industry. How is this done?
Long-Run Industry Supply Positive economic profit induces enti Economic profit is positive when the market price pse is higher than a firm's minimum ay total cost ps°> min ac(y) Entry increases industry supply, causing pse to fal When does entry cease?
Long-Run Industry Supply Positive economic profit induces entry. Economic profit is positive when the market price ps e is higher than a firm’s minimum av. total cost; ps e > min AC(y). Entry increases industry supply, causing ps e to fall. When does entry cease?
Long-Run Industry Supply The Market A“ TypicalFirn p Mkt, Demand s2(p) MCO Acly Mkt Supply y Suppose the industry initially contains only two firms
Long-Run Industry Supply S2 (p) Mkt. Demand MC(y) AC(y) y The Market A “Typical” Firm p p Y Suppose the industry initially contains only two firms. Mkt. Supply
Long-Run Industry Supply The Market A“ TypicalFirn p Mkt, Demand s2(p) MCO Acly p2 p2 y Then the market-clearing price is p2
Long-Run Industry Supply S2 (p) Mkt. Demand MC(y) AC(y) y The Market A “Typical” Firm p p Y p2 p2 Then the market-clearing price is p2
Long-Run Industry Supply The Market A“ TypicalFirn p Mkt, Demand s2(p) MCO Acly p2 p2 y y Then the market-clearing price is p2- Each firm produces y2* units of output
Long-Run Industry Supply S2 (p) Mkt. Demand MC(y) AC(y) y The Market A “Typical” Firm p p Y p2 p2 y2 * Then the market-clearing price is p2 . Each firm produces y2 * units of output