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Examples
The demand curve facing the individual firm will be downward sloping but relatively
elastic because of the presence of substitutes.
Pricing policy-the firm is a price maker. A successful firm might take advantage of a
greater market share and brand loyalty and so charge a higher price. It would
increase sales revenue by doing this in the portion of the demand curve where the
demand for the firms product is inelastic. If demand for the firms product is elastic
the firm should reduce price to increase revenue.
Output-Output is below the optimum level {excess capacity}. The price change
would be higher than what they would charge if output was higher.
Barriers to entry-There are few barriers to entry such as advertising and brand
names.
Profits- Firms can make abnormal profits in the short run but rivals are free to enter
the market.
TC=OCBQ1
TR=OP1AQ1
There are abnormal profits of CP1AB
TR=OPBQ1
TC=AC Q=OCOQ1
TC=OCBQ1
Economic Efficiency
In the short run there is no allocative efficiency because price does not equal
marginal cost. This does not happen in the long run either.
In the short run there is no productive efficiency because the firm is not producing
at the lowest point on the average cost curves. This does not happen in the long run
either.