{"id":61379,"date":"2022-05-15T20:05:04","date_gmt":"2022-05-15T20:05:04","guid":{"rendered":"https:\/\/assignmenttutors.net\/blog\/chapter-09-pure-competition-in-the-long-run\/"},"modified":"2022-05-15T20:05:04","modified_gmt":"2022-05-15T20:05:04","slug":"chapter-09-pure-competition-in-the-long-run","status":"publish","type":"post","link":"https:\/\/assignmenttutors.net\/blog\/chapter-09-pure-competition-in-the-long-run\/","title":{"rendered":"Chapter 09 pure competition in the long run"},"content":{"rendered":"
\n

1. Explain how the long run differs from the short run in pure competition. LO1<\/p>\n

2. Relate opportunity costs to why profits encourage entry into purely competitive industries and<\/p>\n

how losses encourage exit from purely competitive industries. L02<\/p>\n

3. How do the entry and exit of firms in a purely competitive industry affect resource flows and<\/p>\n

long\u2010run profits and losses? LO3<\/p>\n

4. Using diagrams for both the industry and a representative firm, illustrate competitive long\u2010run<\/p>\n

equilibrium. Assuming constant costs, employ these diagrams to show how (a) an increase and<\/p>\n

(b) a decrease in market demand will upset that long\u2010run equilibrium. Trace graphically and<\/p>\n

describe verbally the adjustment processes by which long\u2010run equilibrium is restored. Now<\/p>\n

rework your analysis for increasing\u2010 and decreasing\u2010cost industries and compare the three longrun<\/p>\n

supply curves. LO4<\/p>\n

5. In long\u2010run equilibrium, P = minimum ATC = MC. Of what significance for economic<\/p>\n

efficiency is the equality of P and minimum ATC? The equality of P and MC? Distinguish<\/p>\n

between productive efficiency and allocative efficiency in<\/p>\n

6. Suppose that purely competitive firms producing cashews discover that P exceeds MC. Will<\/p>\n

their combined output of cashews be too little, too much, or just right to achieve allocative<\/p>\n

efficiency? In the long run, what will happen to the supply of cashews and the price of cashews?<\/p>\n

Use a supply and demand diagram to show how that response will change the combined amount<\/p>\n

of consumer surplus and producer surplus in the market for cashew<\/p>\n

7. The basic model of pure competition reviewed in this chapter finds that in the long run all<\/p>\n

firms in a purely competitive industry will earn normal profits. If all firms will only earn a normal<\/p>\n

profit in the long run, why would any firms bother to develop new products or lower\u2010cost<\/p>\n

production methods? Explain. LO6<\/p>\n

8. \u201cNinety percent of new products fail within two years\u2014so you shouldn\u2019t be so eager to<\/p>\n

innovate.\u201d Do you agree? Explain why or why not. LO6<\/p>\n

\u00a0<\/p>\n

9. LAST WORD How does a generic drug differ from its brand\u2010name, previously patented<\/p>\n

equivalent? Explain why the price of a brand\u2010name drug typically declines when an equivalent<\/p>\n

generic drug becomes available? Explain how that drop in price affects allocative efficiency.<\/p>\n

\u00a0<\/p>\n

\u00a0<\/p>\n

PROBLEMS<\/p>\n

1. A firm in a purely competitive industry has a typical cost structure. The normal rate of profit in<\/p>\n

the economy is 5 percent. This firm is earning $5.50 on every $50 invested by its founders. What<\/p>\n

is its percentage rate of return? Is the firm earning an economic profit? If so, how large? Will this<\/p>\n

industry see entry or exit? What will be the rate of return earned by firms in this industry once the<\/p>\n

industry reaches long-run equilibrium? LO3<\/p>\n

\u00a0<\/p>\n

\u00a0<\/p>\n

2. A firm in a purely competitive industry is currently producing 1000 units per day at a total cost<\/p>\n

of $450. If the firm produced 800 units per day, its total cost would be $300, and if it produced<\/p>\n

500 units per day, its total cost would be $275. What are the firm\u2019s ATC per unit at these three<\/p>\n

levels of production? If every firm in this industry has the same cost structure, is the industry in<\/p>\n

long\u2010run competitive equilibrium? From what you know about these firms\u2019 cost structures, what<\/p>\n

is the highest possible price per unit that could exist as the market price in long\u2010run equilibrium?<\/p>\n

If that price ends up being the market price and if the normal rate of profit is 10 percent, then how<\/p>\n

big will each firm\u2019s accounting profit per unit be? LO5<\/p>\n

\u00a0<\/p>\n

\u00a0<\/p>\n

3. There are 300 purely competitive farms in the local dairy market. Of the 300 dairy farms, 298<\/p>\n

have a cost structure that generates profits of $24 for every $300 invested. What is their<\/p>\n

percentage rate of return? The other two dairies have a cost structure that generates profits of $22<\/p>\n

for every $200 invested. What is their percentage rate of return? Assuming that the normal rate of<\/p>\n

profit in the economy is 10 percent, will there be entry or exit? Will the change in the number of<\/p>\n

firms affect the two that earn $22 for every $200 invested? What will be the rate of return earned<\/p>\n

by most firms in the industry in long\u2010run equilibrium? If firms can copy each other\u2019s technology,<\/p>\n

what will be the rate of return eventually earned by all firms? LO5<\/p>\n

\u00a0<\/p>\n

\u00a0<\/p>\n

\u00a0<\/p>\n

\u00a0<\/p>\n

\u00a0<\/p>\n

\u00a0<\/p>\n<\/div>\n","protected":false},"excerpt":{"rendered":"

1. Explain how the long run differs from the short run in pure competition. LO1 2. Relate opportunity costs to why profits encourage entry into purely competitive industries and how losses encourage exit from purely competitive industries. L02 3. How do the entry and exit of firms in a purely competitive industry affect resource flows […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[16],"tags":[],"class_list":["post-61379","post","type-post","status-publish","format-standard","hentry","category-education"],"_links":{"self":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/posts\/61379","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/comments?post=61379"}],"version-history":[{"count":0,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/posts\/61379\/revisions"}],"wp:attachment":[{"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/media?parent=61379"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/categories?post=61379"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/assignmenttutors.net\/blog\/wp-json\/wp\/v2\/tags?post=61379"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}