9.1 Explain how the long run differs from the short run in pure competition.
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9.2 Relate
opportunity costs to why profits encourage entry into purely
competitive industries and how losses encourage exit from purely
competitive industries.
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9.3 How do the entry and exit of firms in a purely competitive industry affect resource flows and long-run profits and losses?
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9.4 Using
diagrams for both the industry and a representative firm, illustrate
competitive long-run equilibrium. Assuming constant costs, employ these
diagrams to show how (a) an increase and (b) a decrease in market demand
will upset that long-run equilibrium. Trace graphically and describe
verbally the adjustment processes by which long-run equilibrium is
restored. Now rework your analysis for increasing- and decreasing-cost
industries and compare the three long-run supply curves.
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9.5 In long-run equilibrium, P = minimum ATC = MC. Of what significance for economic efficiency is the equality of P and minimum ATC? The equality of P and MC? Distinguish between productive efficiency and allocative efficiency in your answer.
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9.6 Suppose that purely competitive firms producing cashews discover that P
exceeds MC. Will their combined output of cashews be too little, too
much, or just right to achieve allocative efficiency? In the long run,
what will happen to the supply of cashews and the price of cashews? Use a
supply and demand diagram to show how that response will change the
combined amount of consumer surplus and producer surplus in the market
for cashews.
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9.7 The
basic model of pure competition reviewed in this chapter finds that in
the long run all firms in a purely competitive industry will earn normal
profits. If all firms will only earn a normal profit in the long run,
why would any firms bother to develop new products or lower-cost
production methods? Explain.
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9.8 ”Ninety
percent of new products fail within two years—so you shouldn’t be so
eager to innovate." Do you agree? Explain why or why not.
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9.9 LAST WORD
How does a generic drug differ from its brand- name, previously
patented equivalent? Explain why the price of a brand-name drug
typically declines when an equivalent generic drag becomes available.
Explain how that drop in price affects allocative efficiency.
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