Question

T-Mobile Wi-Fi7:28 AM < To Do Hmk 9 Detail Submission Grade i. Set up a market for good D in long run equilibrium assuming perfect competition. ii. Next to the market, set up the situation facing firm d that provides good D. Assume a general decline in preference for good D occurs among consumers ii. Illustrate the short-run dis- equilibrium indicating the situation with subscripts 2. iv. Illustrate the movement to long-run equilibrium indicating the situation with subscripts 3 9 Dashboard Calendar To Do Notifications Inbox

Answer 1

The following is the market of long run equilibrium for good D -

Now, when demand reduces because of fall in prefernce, the following will take place -

Market for D Firm d ATC MC Price Price Supply MR Demand Output OUtput

Notice that because of decrease in demand, firms now start earning losses (red region) in short run.

Market for D Firm d ATC MC Price Price Supply MR P2 MR2 Demand Demand 2 d2 d Output OUtput

However, becaus eof loss, firms will start leaving the industry. Thus the supply will start reducing. This will continue until the left firms start earning normal profit again and thus new equilibrium will occur in long run as follows -

Now, you see that again in long run, firm will starts earning normal profit. Price is again set at earlier price at P3 but output declined to D3 as total output in market and d3 as output per firm.