Erosion of Economic Profits in a Competitive Market
Imagine a competitive market for a simple agricultural product where all producers initially use the same methods and earn just enough to stay in business. One producer develops a new technique that significantly lowers their cost of production, allowing them to earn substantial profits at the current market price. Assuming other producers can eventually adopt this new technique, explain the step-by-step market process that will cause these extra profits to disappear over the long term. What will be the final profit level for the typical producer in this market once it settles into a new state?
0
1
Tags
Social Science
Empirical Science
Science
Economy
CORE Econ
Economics
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
Analysis in Bloom's Taxonomy
Cognitive Psychology
Psychology
Related
Market Competition as the Arbiter of Firm Boundaries
Consider a competitive market for a standardized product where a recent technological breakthrough allows some firms to produce at a significantly lower average cost than others. These innovative firms are currently earning large profits. Which of the following statements best analyzes the most likely long-run adjustment process in this market?
Market Dynamics in the Specialty Coffee Industry
An individual who works for an hourly wage receives a large, unexpected inheritance, which substantially increases their overall wealth without changing their pay rate. If this individual considers free time to be a desirable good, how will this increase in wealth, considered in isolation, influence their choice of how many hours to work?
A competitive market is initially in long-run equilibrium. A new production technology is then introduced that significantly lowers the average cost of production for any firm that adopts it. Arrange the following events to describe the logical sequence of how the market adjusts to a new long-run equilibrium.
A competitive market is initially in long-run equilibrium. A new production technology is then introduced that significantly lowers the average cost of production for any firm that adopts it. Arrange the following events to describe the logical sequence of how the market adjusts to a new long-run equilibrium.
Long-Term Survival in Competitive Markets
Erosion of Economic Profits in a Competitive Market
In a competitive market, a single firm that develops a unique, cost-reducing production process can expect to earn above-normal profits indefinitely, as long as it can prevent its competitors from discovering the new method.
Match each market event with its most direct consequence during the long-run adjustment process in a competitive industry.
Competitive Dynamics in Wallet Manufacturing