【正文】 ABCD to EFGD by increasing its output in the long run. Figure The longrun output of a profitmaximizing petitive firm is the point at which longrun marginal cost equals the price. Chapter 8: Profit Maximization and Competitive Supply 25 of 37 CHOOSING OUTPUT IN THE LONG RUN LongRun Competitive Equilibrium Accounting Profit and Economic Profit π = R ? wL ? rK Zero Economic Profit ● zero economic profit A firm is earning a normal return on its investment— ., it is doing as well as it could by investing its money elsewhere. Chapter 8: Profit Maximization and Competitive Supply 26 of 37 CHOOSING OUTPUT IN THE LONG RUN LongRun Competitive Equilibrium Entry and Exit LongRun Competitive Equilibrium Initially the longrun equilibrium price of a product is $40 per unit, shown in (b) as the intersection of demand curve D and supply curve S1. In (a) we see that firms earn positive profits because longrun average cost reaches a minimum of $30 (at q2). Positive profit encourages entry of new firms and causes a shift to the right in the supply curve to S2, as shown in (b). The longrun equilibrium occurs at a price of $30, as shown in (a), where each firm earns zero profit and there is no incentive to enter or exit the industry. Figure Chapter 8: Profit Maximization and Competitive Supply 27 of 37 CHOOSING OUTPUT IN THE LONG RUN LongRun Competitive Equilibrium Entry and Exit In a market with entry and exit, a firm enters when it can earn a positive longrun profit and exits when it faces the prospect of a longrun loss. ● longrun petitive equilibrium All firms in an industry are maximizing profit, no firm has an incentive to enter or exit, and price is such that quantity supplied equals quantity demanded. A longrun petitive equilibrium occurs when three conditions hold: 1. All firms in the industry are maximizing profit. 2. No firm has an incentive either to enter or exit the industry because all firms are earning zero economic profit. 3. The price of the product is such that the quantity supplied by the industry is equal to the quantity demanded by consumers. Chapter 8: Profit Maximization and Competitive Supply 28 of 37 CHOOSING OUTPUT IN THE LONG RUN LongRun Competitive Equilibrium Firms Having Identical Costs To see why all the conditions for longrun equilibrium must hold, assume that all firms have identical costs. Now consider what happens if too many firms enter the industry in response to an opportunity for profit. The industry supply curve will shift further to the right, and price will fall. Chapter 8: Profit Maximization and Competitive Supply 29 of 37 CHOOSING OUTPUT IN THE LONG RUN LongRun Competitive Equilibrium Firms Having Different Costs The Opportunity Cost of Land Now suppose that all firms in the industry do not have identical cost curves. The distinction between accounting profit and economic profit is important here. If a patent is profitable, other firms in the industry will pay to use it. The increased value of a patent thus represents an opportunity cost to the firm that holds it. There are other instances in which firms earning positive accounting profit may be earning zero economic profit. Suppose, for example, that a clothing store happens to be located near a large shopping center. The additional flow of customers can substantially increase the store’s accounting profit because the cost of the land is based on its historical cost. Chapter 8: Profit Maximization and Competitive Supply 30 of 37 CHOOSING OUTPUT IN THE LONG RUN Economic Rent In the long run, in a petitive market, the producer surplus that a firm earns on the output that it sells consists of the economic rent that it enjoys from all its scarce inputs. ● economic rent Amount that firms are willing to pay for an input less the minimum amount necessary to obtain it. Producer Surplus in the Long Run Chapter 8: Profit Maximization and Competitive Supply 31 of 37 CHOOSING OUTPUT IN THE LONG RUN Firms Earn Zero Profit in LongRun Equilibrium In longrun equilibrium, all firms earn zero economic profit. In (a), a baseball team in a moderatesized city sells enough tickets so that price ($7) is equal to marginal and average cost. In (b), the demand is greater, so a $10 price can be charged. The team increases sales to the point at which the average cost