Long-Run Equilibrium in a Competitive Market
A long-run equilibrium in a competitive market is the state reached when rent-seeking and competition have eliminated less-efficient firms and driven economic rents to zero, thereby halting the entry of new firms or the expansion of existing ones. In this equilibrium, the remaining firms produce at a low average cost that is approximately equal to the market price, resulting in them earning only normal profits. This market state is stable and will persist unless it is disrupted by an exogenous supply or demand shock.
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Introduction to Microeconomics Course
The Economy 2.0 Microeconomics @ CORE Econ
Ch.8 Supply and demand: Markets with many buyers and sellers - The Economy 2.0 Microeconomics @ CORE Econ
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An Increase in the Supply of Bread Through Investment in New Capacity at the Market Level (Figure 8.17)
Long-Run Equilibrium in a Competitive Market
Potential for Further Market Entry and Price Reduction
Short-Run Losses and Long-Run Market Exit
Short-Run Rents as a Driver for Long-Run Market Entry and Capacity Expansion
A Bakery's Firm-Level Decision to Invest in More Capacity (Figure 8.16)
Costs of Entry
Market-Wide Expansion and Entry's Effect on Supply and Price
Imagine a city's market for handcrafted wooden chairs, which is currently in a short-run equilibrium where numerous small workshops are earning significant economic profits. Assuming it is relatively easy and inexpensive for new artisans to set up a workshop, which of the following describes the most likely chain of events in the long run?
Consider a competitive market where, due to a sudden increase in consumer demand, firms are currently earning profits well above their normal rate of return. Arrange the following events in the logical order that describes how this market will adjust over the long term.
Market Adjustment in the Scooter Rental Industry
Long-Run Adjustment to Market Losses
Long-Run Market Adjustments to Profits and Losses
In a market where many small firms are producing an identical product and are currently earning profits significantly above the normal rate of return, the long-run adjustment process will ultimately cause the market price to increase.
Match each short-run market condition with the primary long-run adjustment that is expected to occur as a result.
In a competitive market, the existence of short-run economic profits for incumbent firms serves as a key signal. In the long run, this signal will attract new entrants and encourage existing firms to expand, leading to an increase in the overall market ____.
Strategic Expansion Decision for a Local Bakery
An entrepreneur observes that the few existing gourmet cupcake shops in a city are consistently busy and are earning high profits. The entrepreneur is now considering opening a new cupcake shop to capitalize on this opportunity. From the perspective of long-run market dynamics, what is the most significant economic risk the entrepreneur should consider before entering this market?
Learn After
Elimination of Inefficient Firms and Economic Rents via Competition
Stability of Long-Run Equilibrium Pending Exogenous Shocks
A typical firm in a perfectly competitive market is producing 1,000 units of a good. At this level of output, the market price is $20, the firm's marginal cost is $20, and its average total cost is also $20. Furthermore, the firm's average total cost is at its lowest possible value. Based on this information, what can be concluded about the market?
Market Adjustment to Long-Run Equilibrium
Evaluating a Historical Climate Hypothesis
Imagine a perfectly competitive market where existing firms are currently earning profits greater than zero. Arrange the following events in the logical sequence that will lead this market to a new stable state where entry and exit cease.
Consider a perfectly competitive market where the current market price for a product is below the minimum average total cost for the typical firm. Which of the following outcomes is most likely to occur in the long run?
In a perfectly competitive market that has reached its long-run equilibrium, individual firms will have no incentive to continue operating because they are earning zero accounting profit.
For a perfectly competitive market, match each market condition for a typical firm with the corresponding long-run market adjustment.
Stability of Long-Run Competitive Equilibrium
An industry analyst observes the market for gourmet food trucks in a city and notes that several new trucks have entered the market over the past year, while very few have ceased operations. The analyst concludes that this market cannot be perfectly competitive, because the persistent entry of new firms indicates a lack of stability. Which of the following provides the best assessment of the analyst's conclusion?
When a perfectly competitive market is in a long-run stable state, with no firms entering or exiting, the typical firm earns zero __________ profit.