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G-20: In 1999, the Finance Ministers of the Group of Seven (G-7) leading industrialized nations announced the creation of the Group of Twenty (G-20). This international forum of Finance Ministers and Central Bank Governors represents 19 countries, the European Union and the Bretton Woods Institutions (the International Monetary Fund -IMF-- and the World Bank). The G-20 promotes discussion, and studies and reviews policy issues among industrialized countries and emerging markets with a view to promoting international financial stability. Member countries include: Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Mexico, Russia, Saudi Arabia, South Africa, Korea, Turkey, the United Kingdom, the United States and the European Union.
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Lesson 19: Monopolistic Competition | Unit 3: Output
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Page: 13 of 22
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Topic:
Long-Run Equilibrium
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- The long run, which is the period in which all inputs are variable, has two implications for monopolistic competition firms.
- A firm adjusts plant size to maximize profit in the long run.
- Firms enter and leave the industry to achieve zero economic profit.
- The end result of this long-run adjustment is:
- The demand curve for each firm is tangent to the long-run average cost curve and the short-run average total cost curve. This ensures zero economic profit.
- However, because the demand curve is negatively sloped, this point of tangency takes place on the negatively-sloped portion of the long-run average cost curve.
- The negatively-sloped portion of the long-run average cost curve portion results from economies of scale and is less than the minimum efficient scale.
- The primary implication is that monopolistic competition does not use capital as efficiently as perfect competition.
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ASSUMPTIONS, CLASSICAL ECONOMICS Classical economics, especially as directed toward macroeconomics, relies on three key assumptions--flexible prices, Say's law, and saving-investment equality. Flexible prices ensure that markets adjust to equilibrium and eliminate shortages and surpluses. Say's law states that supply creates its own demand and means that enough income is generated by production to purchase the resulting production. The saving-investment equality ensures that any income leaked from consumption into saving is replaced by an equal amount of investment. Although of questionable realism, these three assumptions imply that the economy would operate at full employment.
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BLUE PLACIDOLA
[What's This?]
Today, you are likely to spend a great deal of time watching the shopping channel seeking to buy either a large, stuffed giraffe or a birthday greeting card for your aunt. Be on the lookout for telephone calls from former employers.
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Woodrow Wilson's portrait adorned the $100,000 bill that was removed from circulation in 1929. Woodrow Wilson was removed from circulation in 1924.
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"Lord, where we are wrong, make us willing to change; where we are right, make us easy to live with. " -- Peter Marshall, US Senate chaplain
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Quantitative Restriction
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