Consider what happens in the long run when demand falls in a constant cost industry. For instance, think about the market for pizza in a small city after the city's biggest textile mill shuts down. The accompanying graph begins in a long-run equilibrium. Move the appropriate curve or curves on the graph to illustrate the fall in demand and the resulting change that returns the market to long-run equilibrium. Finally, move point E to the new equilibrium position. Price of pizza Market for Pizza E Also, answer the following questions about the market's response to this fall in demand. a. The marginal cost of production is lowest at the short-run equilibrium b. When firms cut prices, they often do so in dramatic ways. The local pizza shops are most likely to offer "Buy one, get one free" in the short-run equilibrium c. The market price is less than the firm's average cost of production in the .The market price is equal to the average cost of production in the d. Restating the previous statements: Profits are negative at the . Profits are zero at the e. Roughly speaking, there are in the final long-run equilibrium than the number of firms in the initial long- run equilibrium. Quantity of pizza Supply Demand
Consider what happens in the long run when demand falls in a constant cost industry. For instance, think about the market for pizza in a small city after the city's biggest textile mill shuts down. The accompanying graph begins in a long-run equilibrium. Move the appropriate curve or curves on the graph to illustrate the fall in demand and the resulting change that returns the market to long-run equilibrium. Finally, move point E to the new equilibrium position. Price of pizza Market for Pizza E Also, answer the following questions about the market's response to this fall in demand. a. The marginal cost of production is lowest at the short-run equilibrium b. When firms cut prices, they often do so in dramatic ways. The local pizza shops are most likely to offer "Buy one, get one free" in the short-run equilibrium c. The market price is less than the firm's average cost of production in the .The market price is equal to the average cost of production in the d. Restating the previous statements: Profits are negative at the . Profits are zero at the e. Roughly speaking, there are in the final long-run equilibrium than the number of firms in the initial long- run equilibrium. Quantity of pizza Supply Demand
Chapter11: Profit Maximization
Section: Chapter Questions
Problem 11.11P
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Transcribed Image Text:Consider what happens in the long run when demand falls in
a constant cost industry. For instance, think about the market
for pizza in a small city after the city's biggest textile mill
shuts down. The accompanying graph begins in a long-run
equilibrium.
Move the appropriate curve or curves on the graph to
illustrate the fall in demand and the resulting change that
returns the market to long-run equilibrium. Finally, move
point E to the new equilibrium position.
Price of pizza
Market for Pizza
E
Also, answer the following questions about the market's
response to this fall in demand.
a. The marginal cost of production is lowest at the
short-run equilibrium
b. When firms cut prices, they often do so in dramatic
ways. The local pizza shops are most likely to offer "Buy
one, get one free" in the
short-run equilibrium
c. The market price is less than the firm's average cost of
production in the
.The
market price is equal to the average cost of production in
the
d. Restating the previous statements: Profits are negative
at the
. Profits are zero
at the
e. Roughly speaking, there are
in the final long-run
equilibrium than the number of firms in the initial long-
run equilibrium.
Quantity of pizza
Supply
Demand
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