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INCREASING MARGINAL RETURNS: In the short-run production of a firm, an increase in the variable input results in an increase in the marginal product of the variable input. Increasing marginal returns typically surface when the first few quantities of a variable input are added to a fixed input. Compare this with decreasing marginal returns. You should also compare this with economies of scale associated with long-run production.
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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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INFORMATION SEARCH The decision to seek out or produce information based on a comparison of the cost of acquiring the information and the benefit obtained from the information. Efficient information search is achieved with a equality between the marginal cost of search and the marginal benefit of search. Because the marginal cost of search is invariably greater than zero, search effort stops short of acquiring complete information.
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BEIGE MUNDORTLE
[What's This?]
Today, you are likely to spend a great deal of time driving to a factory outlet seeking to buy either storage boxes for your computer software CDs or a set of tires. Be on the lookout for bottles of barbeque sauce that act TOO innocent.
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This isn't me! What am I?
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One of the largest markets for gold in the United States is the manufacturing of class rings.
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"Old age isn't so bad when you consider the alternative. " -- Cato, Roman orator
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NAIRU
Non-Accelerating Inflation Rate of Unemployment
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