【正文】 B ? Both own their land ? A is located on a river which lowers A’s shipping cost by $10,000 pared to B. ? The demand for A’s river location will increase the price of A’s land to $10,000 Chapter 8 Slide 69 Choosing Output in the Long Run ? An Example ? Economic rent = $10,000 ?$10,000 zero cost for the land ? Economic rent increases ? Economic profit of A = 0 Chapter 8 Slide 70 Firms Earn Zero Profit in LongRun Equilibrium Ticket Price Season Tickets Sales (millions) LAC $7 A baseball team in a moderatesized city sells enough tickets so that price is equal to marginal and average cost (profit = 0). LMC Chapter 8 Slide 71 $10 Economic Rent Ticket Price $7 LAC A team with the same cost in a larger city sells tickets for $10. Firms Earn Zero Profit in LongRun Equilibrium Season Tickets Sales (millions) LMC Chapter 8 Slide 72 ? With a fixed input such as a unique location, the difference between the cost of production (LAC = 7) and price ($10) is the value or opportunity cost of the input (location) and represents the economic rent from the input. Firms Earn Zero Profit in LongRun Equilibrium Chapter 8 Slide 73 ? If the opportunity cost of the input (rent) is not taken into consideration it may appear that economic profits exist in the longrun. Firms Earn Zero Profit in LongRun Equilibrium Chapter 8 Slide 74 ? The shape of the longrun supply curve depends on the extent to which changes in industry output affect the prices the firms must pay for inputs. The Industry’s LongRun Supply Curve Chapter 8 Slide 75 The Industry’s LongRun Supply Curve ? To determine longrun supply, we assume: ? All firms have access to the available production technology. ? Output is increased by using more inputs, not by invention. Chapter 8 Slide 76 The Industry’s LongRun Supply Curve ? To determine longrun supply, we assume: ? The market for inputs does not change with expansions and contractions of the industry. A P1 AC P1 MC q1 D1 S1 Q1 C D2 P2 P2 q2 B S2 Q2 Economic profits attract new firms. Supply increases to S2 and the market returns to longrun equilibrium. LongRun Supply in a ConstantCost Industry Output Output $ per unit of output $ per unit of output SL Q1 increase to Q2. Longrun supply = SL = LRAC. Change in output has no impact on input cost. Chapter 8 Slide 78 ? In a constantcost industry, longrun supply is a horizontal line at a price that is equal to the minimum average cost of production. LongRun Supply in a ConstantCost Industry LongRun Supply in an IncreasingCost Industry Output Output $ per unit of output $ per unit of output S1 D1 P1 LAC1 P1 SMC1 q1 Q1 A SL P3 SMC2 Due to the increase in input prices, longrun equilibrium occurs at a higher price. LAC2 B S2 P3 Q3 q2 P2 P2 D1 Q2 Chapter 8 Slide 80 ? In a increasingcost industry, longrun supply curve is upward sloping. LongRun Supply in a IncreasingCost Industry Chapter 8 Slide 81 The Industry’s LongRun Supply Curve ? Questions 1) Explain how decreasingcost is possible. 2) Illustrate a decreasing cost industry. 3) What is the slope of the SL in a decreasingcost industry? S2 B SL P3 Q3 SMC2 P3 LAC2 Due to the decrease in input prices, longrun equilibrium occurs at a lower price. LongRun Supply in an DecreasingCost Industry Output Output $ per unit of output $ per unit of output P1 P1 SMC1 A D1 S1 Q1 q1 LAC1 Q2 q2 P2 P2 D2 Chapter 8 Slide 83 ? In a decreasingcost industry, longrun supply curve is downward sloping. LongRun Supply in a IncreasingCost Industry Chapter 8 Slide 84 ? The Effects of a Tax ? In an earlier chapter we studied how firms respond to taxes on an input. ? Now, we will consider how a firm responds to a tax on its output. The Industry’s LongRun Supply Curve Chapter 8 Slide 85 Effect of an Output Tax on a Competitive Firm’s Output Price ($ per unit of output) Output AVC1 MC1 P1 q1 The firm will reduce output to the point at which the marginal cost plus the tax equals the price. q2 t MC2 = MC1 + tax AVC2 An output tax raises the firm’s marginal cost by the amount of the tax. Chapter 8 Slide 86 Effect of an Output Tax on Industry Output Price ($ per unit of output) Output D P1 S1 Q1 P2 Q2 S2 = S1 + t t Tax shifts S1 to S2 and output falls to Q2. Price increases to P2. Chapter 8 Slide 87 ? LongRun Elasticity of Supply 1) Constantcost industry ?Long