long-run profit maximization -
- marginal costs change now that firm can adjust more inputs in long run
- economic profit made as long as marginal cost (equal to price) above the average total cost
- zero economic profit - firm earning a normal (competitive) return on investment
- normal return - equal to investing elsewhere (whether in capital or other industry)
- high profit >> other firms enter market (assuming free entry) >> increases output >> drives down prices >> reduces profit
long-run competitive equilibrium - when no exit/entry
- firms earning zero economic profit >> no incentive to enter or exit
- all firms must be maximizing profit
- quantity supplied by industry equal to quantity demanded by consumers
- patents act as opportunity cost for firms that have it
- can be sold or kept to produce a positive profit
economic rent - willingness of firms to pay for an input less than the minimum amount
- some firms have natural advantages over others
- land might be beneficial to shipping
- materials might be more readily accessible
- gives firm an edge >> other firms willing to pay for that edge >> economic rent
long-run supply curve - cannot just sum curves like w/ short-run
- in long-run, markets and enter/exit, so no way to tell how many total firms are in the market
- constant-cost industry - horizontal long-run supply curve, very elastic
- unlike short-run, where 1 input held constant, both inputs can vary in the long-run
- use MRTS to relate wages/rent to marginal labor/capital functions (in terms of Q)
- C(Q) = wL(Q) + rK(Q)
- curve generally wider than short-run curve
- MC-MR intersection located farther to the right
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