Diagram a model of a perfectly competitive market and a separate model of a firm experiencing economic profits. Explain and illustrate on your models the changes that take place in the long run. Be sure to explain why any changes take place.
What will be an ideal response?
Additional firms, in pursuit of higher profits, will enter the market, shifting market supply to the right and reducing the market price. As the market price (MR) is reduced, the individual firm will decrease output and suffer reduced profits. This process will continue until the market price reaches the firm's minimum ATC, indicating zero economic profits. See Figure 23.2 in The Economy Today or Figure 9.2 in The Micro Economy Today for the progression of changes in the models.
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A secondary effect of installment credit was the
(a) development of a new market in used durables. (b) emergence of a new network of dependable supplies of electric power. (c) surge in prices. (d) increased government intervention in household activity.
If some nonprice level determinant causes total spending to decrease, then the effect on aggregate demand will be a: a. movement upward along the curve
b. movement downward along the curve. c. shift to the left. d. shift to the right.