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Stability of Long-Run Equilibrium Pending Exogenous Shocks
Once a competitive market attains a long-run equilibrium, it enters a stable state. This balance is sustained because all firms earn normal profits, which removes the financial incentive for new firms to enter or existing firms to exit. This stability continues indefinitely unless an external event, known as an exogenous shock to either supply or demand, alters the fundamental market conditions.
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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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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.
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The Self-Correcting Nature of Competitive Markets
Imagine the market for handmade ceramic mugs is perfectly competitive and in a state of long-run equilibrium. Suddenly, a major social media influencer features these mugs, causing a significant and unexpected surge in consumer demand. What is the most likely immediate consequence for the individual firms already operating in this market?
Evaluating the 'Revealed Preference' Assumption in Historical Economic Models
A perfectly competitive market for solar panels is in long-run equilibrium. A major technological breakthrough significantly reduces the cost of producing each panel. Arrange the following events in the chronological order they would occur as the market adjusts to a new long-run equilibrium.
True or False: In a perfectly competitive market that has reached long-run equilibrium, the condition of firms earning zero economic profit implies that the market is unstable, as firms will soon begin to exit seeking higher returns elsewhere.
Market Adjustment to a Regulatory Shock
The Stability Mechanism of Long-Run Equilibrium
A perfectly competitive market is initially in long-run equilibrium where firms earn zero economic profit. Match each external shock to the sequence of events that describes the market's adjustment process to a new long-run equilibrium.
In a perfectly competitive market that has achieved long-run equilibrium, the primary reason the market remains stable, with no incentive for firms to enter or exit, is that all existing firms are earning ____ profit.
A perfectly competitive market for coffee beans is in a stable, long-run equilibrium. A new, widely-publicized health study reveals significant benefits of daily coffee consumption, causing a permanent increase in consumer demand. Assuming this is a constant-cost industry, how will the new long-run equilibrium compare to the original equilibrium before the study was published?
A perfectly competitive market for solar panels is in long-run equilibrium. A major technological breakthrough significantly reduces the cost of producing each panel. Arrange the following events in the chronological order they would occur as the market adjusts to a new long-run equilibrium.