From Short-Run Profits to Long-Run Equilibrium
A market is characterized by firms earning significant economic profits in the short run. Analyze the two primary types of adjustments that are likely to occur in the long run as a result of these profits. In your analysis, explain the underlying incentive for each adjustment and describe the ultimate effect these changes will have on market supply, price, and the profitability of the typical firm.
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CORE Econ
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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
Analysis in Bloom's Taxonomy
Cognitive Psychology
Psychology
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A company in a competitive market develops a new, highly efficient manufacturing process that significantly lowers its production costs, allowing it to earn substantial economic profits at the current market price. If this new process is not protected by a long-term patent and can be replicated by others, what is the most likely long-run adjustment in this market?
A market is initially in a state where the typical firm is earning profits significantly above its normal rate of return. Arrange the following events to show the logical sequence of how the market adjusts to a new long-run state.
From Short-Run Profits to Long-Run Equilibrium
Market Response to High Profits
In a market characterized by low barriers to entry, the existence of substantial short-run economic profits for incumbent firms is a strong indicator that those same firms will also earn sustained, above-normal profits in the long run.
Match each short-run market condition with the most likely long-run adjustment that will occur, assuming low barriers to entry and exit.
An entrepreneur is analyzing a market where incumbent firms are currently earning substantial economic profits. From the perspective of making a long-term investment decision to enter this market, which of the following factors is the most crucial to assess?
Strategic Response to Short-Run Profits
Contrasting Market Adjustments