Authors libby rittenberg 500
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Figure 9.14 Eliminating Economic Profits in the Long Run
If firms in an industry are making an economic profit, entry will occur
in the long run. In Panel (b), a single firm’s profit is shown by the
shaded area. Entry continues until firms in the industry are operating
at the lowest point on their respective average total cost curves, and
economic profits fall to zero.
Profits in the radish industry attract entry in the long run. Panel (a)
of Figure 9.14 "Eliminating Economic Profits in the Long Run" shows that
as firms enter, the supply curve shifts to the right and the price of radishes
falls. New firms enter as long as there are economic profits to be made—as
long as price exceeds ATC in Panel (b). As price falls, marginal revenue falls
to MR2 and the firm reduces the quantity it supplies, moving along the
marginal cost (MC) curve to the lowest point on the ATC curve, at $0.22 per
pound and an output of 5,000 pounds per month. Although the output of
individual firms falls in response to falling prices, there are now more
firms, so industry output rises to 13 million pounds per month in Panel (a).
Attributed to Libby Rittenberg and Timothy Tregarthen
Saylor URL: />
Saylor.org
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