1. With the aid of a diagram, explain the income and substitution effects of a price change 2. With the aid of a well labelled diagrams. explain how a profit-maximizing firm operating under perfect competition adjusts from short run to long run equilibrium.

1. With the aid of a diagram, explain the income and substitution effects of a price change 2. With the aid of a well labelled diagrams. explain how a profit-maximizing firm operating under perfect competition adjusts from short run to long run equilibrium.

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter13: Firms In Competitive Markets

Section: Chapter Questions

Problem 4CQQ

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1. With the aid of a diagram, explain the income and substitution effects of a price change 2. With the aid of a well labelled diagrams,
explain how a profit-maximizing firm operating under perfect competition adjusts from short run to long run equilibrium.

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Step 1: Define Profit Maximization in Perfect Competition: Short-Run vs. Long-Run

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Step 2: Explain income and substitution effects of price change

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Step 3: Analyze the Short Run Equilibrium

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Step 4: Analyze the Long Run Equilibrium

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