Check Your Understanding

  1. Question

    Which of the following events will induce firms to enter an industry? Which will induce firms to exit? When will entry or exit cease? Explain your answers.

    1. A technological advance lowers the fixed cost of production of every firm in the industry.

    2. The wages paid to workers in the industry go up for an extended period of time.

    3. A permanent change in consumer tastes increases demand for the good.

    4. The price of a key input rises due to a long-term shortage of that input.

  2. Question

    Assume that the egg industry is perfectly competitive and is in long-run equilibrium with a perfectly elastic long-run industry supply curve. Health concerns about cholesterol then lead to a decrease in demand. Construct a figure similar to Figure 60.3, showing the short-run behavior of the industry and how long-run equilibrium is reestablished.