On the next slide you see 2 problems. I show you how to do 13 and you do 14 for homework

3

Start hereP

D1 S1 ATC1 MC1

P=MR1P1

Q1 q1Q q

Market Firm

4

Short runP

D1 S1 ATC1 MC1

P=MR1P1

Q1 q1Q q

Market Firm

So, in the SR

P and Q in the market fall. Number of firms can not adjust in the market.

P and Q fall for the firm. A lose occurs for the firm (shaded triangle). The firm will shut down, but can not yet exit the industry.

In the long run (as seen on next screen) some firms will leave because of loses and the market supply will fall until we return to the original price.

In the market price returns to its original level, but output falls even more than in the short run.

Price and output for the firm returns to its original level and profit is back to zero.

6

Long runP

D1 S1 ATC1 MC1

P=MR1P1

Q1 q1Q q

Market Firm

SO, to answer the questions to problem 13:

a) In the long run there is no change in price from its original level, while in the short run the price fell. So price changes more in the short run!!!!

b) It changes by more in the long run from the original level. In the short run firms make less because of the lower price. In the long run when firms actually leave the market sees a bigger decline in output.

c) In the long run firms that stay have the same output they had before the demand fell. In the short run the firms see the output fall.

d) In the long run profits return to where they started (at 0), while in the short run there is a change in profit from 0 to a loss.