Intro to Long-run Perf Comp

An increase in demand has caused perfectly competitive firms to make profit in the long-run. What will happen?

• New firms enter and prices will decrease until all firms break even

• New firms enter and prices will increase until all firms break even

• Some firms will exit and prices will increase until all firms break even

• Some firms will exit and prices will decrease until all firms break even

In the long-run, perfectly competitive firms cannot incur losses.

• True

• False

Industries where increasing production volume does not affect costs per unit is called

• Increasing Cost Industry

• Constant Cost Industry

• Flat Cost Industry

• Horizontal Cost Industry

In the long-run, price per restaurant meal to expected to increase as incomes go up. What will happen?

• New firms enter

• Some firms exit

• Nothing changes

If I own a perfectly competitive business and I double my production, I can expect my cost per unit to decrease. This is called:

• Economies of scale

• Diseconomies of scale

• Constant returns to scale

• Improvements in scale

Draw an example of a long-run average cost curve that has economies of scale.