Micro 4/12

Perfect Competition: when Shift changes

  • Start with Firm MC=ATC (breaking even)
  • Demand increases in Short Run: D up, P up, Q up, q up, Profit up (causes supply to increase cause other people will enter to get profits)
  • Demand increases in Long Run: P down to Pe, Q up, q down to qe, profit = 0
  • Demand decrease in Short Run: P down, Q down, q down, profit negative (causes supply to decrease cause no one likes to lose money)
  • Demand decreases in Long Run: P up to Pe, Q down, q up, profit = 0
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