Describe how, in the long-run, a permanent decrease in demand can lead to exit of incumbent...

Describe how, in the long-run, a permanent decrease in demand can lead to exit of incumbent firms.

Expert Solution

Profits are the main determinant which shows the existence of a firm in the market. Producers invest their money, time, effort to produce and sell something and hope for the returns through this. Not all firms can perfectly do these activities. This will leads to the leaving of the firm from the industry. Most of the perfectly competitive firms, there is a free entry and exit of the firms. If a firm’s product having low demand in the market will definitely get back from the market.
In long run the firms attain equilibrium at the lower point of the average cost curve. This point will be tangent to the demand curve. There is normal profit was attained by the firms in long run. If there is increase in the existing profit, new firms will be attracted to the industry. This new entrants may leads to the fall in price, and also increase the cost of production. This may lead to an upward shift of the cost curve. This will continue till the average cost curve’s tangency towards the demand curve which determines the market price. If the firm’s in the market create loss, they will leave the industry. The price will raises and the cost may fall as the industry contract until the remaining firms in the industry cover the total cost inclusive of the normal profit rate.

Rahul Sunny answered 2 years ago

Explain how entry and exit lead to a long-run equilibrium in a competitive market. Can you...

Explain how entry and exit lead to a long-run equilibrium in a competitive market. Can you give any real-world examples of firms joining or leaving markets that you suspect are related to this adjustment process?

Describe how easy entry and exit of firms into an industry impacts the long run equilibrium....

Describe how easy entry and exit of firms into an industry impacts the long run equilibrium. (10)

2. Competitive Firm Equilibrium Long run, Exit/Entry in Long Run, Explain why a competitive firm can...

2. Competitive Firm Equilibrium Long run, Exit/Entry in Long Run, Explain why a competitive firm can only earn normal economic profit (define) in long run. 3. Define monopoly, explain why the MR and P( AR) curve for a monopolist are different and why they are downward sloping and why does MR lie below the AR curve. Compute Monopoly P and Q and profits; compare monopoly price/quantity/profits with a competitive market price and quantity. Compute CS, PS, TS for monopoly as...

using permanent income hypothesis, how the effect on long run and short run consumption income relationship...

using permanent income hypothesis, how the effect on long run and short run consumption income relationship in detail.

1) For a fixed aggregate demand curve, an increase in long run aggregate supply will decrease...

1) For a fixed aggregate demand curve, an increase in long run aggregate supply will decrease prices. True False 2) An attempt to reduce current budget deficits could shift the aggregate demand curve left and cause a recession. True False 3) Contractionary fiscal policy is politically popular. False True 4) If aggregate demand increases for a given AS curve, prices will decrease False True 5) Republicans love using fiscal policy to stabilize the economy. False True

Which of the following will lead to the decrease in the demand of health insurance< A)...

Which of the following will lead to the decrease in the demand of health insurance< A) An increase in income B) An increase in premiums C) An increase in risk aversion D) An increase in the expected value of an event occuring

Suppose that this increase in oil prices was permanent. What are the long run effects on...

Suppose that this increase in oil prices was permanent. What are the long run effects on the economy?

Analyze the short run and long run effects of an unanticipated decrease in the money supply...

Analyze the short run and long run effects of an unanticipated decrease in the money supply in the misperceptions model. Tell me what happens to output, the actual price level and expected price level in both the short run and long run.

Describe the consequences of a permanent decrease in the US Money Supply for the nominal exchange...

Describe the consequences of a permanent decrease in the US Money Supply for the nominal exchange rate and for the US interest rate, in the short run as well as over time and in the long run. Draw time path plots for real money balances in the US, the nominal exchange rate, and the interest rate. Explain how your results relate to the idea of “exchange rate overshooting,” in no more than one paragraph.

The idea of permanent income is that consumption depends on a long-run measure of income rather...

The idea of permanent income is that consumption depends on a long-run measure of income rather than just on current income. Operationally, we can define permanent income (??) to be the hypothetical constant flowof income that has the same present value as a household’s actual sources of funds. (a) Use the infinite horizon budget constraint in equation 3.15 (shown below) to obtain a formula for permanent income ??. (if needed, use the result that [1 + 1 + 1 +...

Question