微观经济学课件chapter08章节.pptVIP

CHOOSING OUTPUT IN THE LONG RUN 8.7 Long-Run Profit Maximization Output Choice in the Long Run The firm maximizes its profit by choosing the output at which price equals long-run marginal cost LMC. In the diagram, the firm increases its profit from ABCD to EFGD by increasing its output in the long run. Figure 8.13 The long-run output of a profit-maximizing competitive firm is the point at which long-run marginal cost equals the price. CHOOSING OUTPUT IN THE LONG RUN 8.7 Long-Run Competitive Equilibrium Accounting Profit and Economic Profit π = R ? wL ? rK Zero Economic Profit ● zero economic profit A firm is earning a normal return on its investment—i.e., it is doing as well as it could by investing its money elsewhere. CHOOSING OUTPUT IN THE LONG RUN 8.7 Long-Run Competitive Equilibrium Entry and Exit Long-Run Competitive Equilibrium Initially the long-run equilibrium price of a product is $40 per unit, shown in (b) as the intersection of demand curve D and supply curve S1. In (a) we see that firms earn positive profits because long-run average cost reaches a minimum of $30 (at q2). Positive profit encourages entry of new firms and causes a shift to the right in the supply curve to S2, as shown in (b). The long-run equilibrium occurs at a price of $30, as shown in (a), where each firm earns zero profit and there is no incentive to enter or exit the industry. Figure 8.14 CHOOSING OUTPUT IN THE LONG RUN 8.7 Long-Run Competitive Equilibrium Entry and Exit In a market with entry and exit, a firm enters when it can earn a positive long-run profit and exits when it faces the prospect of a long-run loss. ● long-run competitive equilibrium All firms in an industry are maximizing profit, no firm has an incentive to enter or exit, and price is such that quantity supplied equals quantity demanded. A long-run competitive equilibrium occurs when three conditions hold: All firms in the industry are maximizing profit. 2. No firm has an incentive either to enter o