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In a purely competitive industry
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there may be economic profits in the short run but not in the long run.
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A purely competitive firm
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cannot earn economic profit in the long run.
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The MR=MC rule applies
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in both the short run and the long run
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If a purely competitive firm is producing at the MR=MC output level and earning an economic profit, then
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new firms will enter this market
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Suppose that Betty's Beads is a typical firm operating in a perfectly competitive market. Currently Betty's MR = $15, MC = $12, ATC = $10, and AVC = $8. Based on this information, we can conclude that
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Betty's experience will encourage new firms to enter the market
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In pure competition, if the market price of the product is higher than the minimum average total cost of the firms, then
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other firms will enter the industry and the industry supply will increase.
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If firms enter a purely competitive industry, then in the long run this change will shift the industry
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supply curve to the right, and the individual firm's demand curve will shift down.
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A constant-cost industry is one in which
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resource prices remain unchanged as output is increased.
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When a purely competitive industry is in long run equilibrium
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price and average total cost are equal.
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Assume a purely competitive decreasing-cost industry is initially in long-run equilibrium but then there is a decrease in market demand for the product. After all economic adjustments to this new situation have taken place, product price will be
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higher, but total output will be lower
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Productive efficiency refers to
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the production of a good at the lowest average total cost.
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Allocative efficiency refers to
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the production of the product mix most desired by consumers.
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If for a firm P=minimum ATC = MC, then that means
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both allocative efficiency and productive efficiency are being achieved.
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an example of creative destruction
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Automobile production causes the wagon industry to shut down.
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Creative destruction is most often associated with
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technological advance
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