Firms will leave the industry if the short-run equilibrium is unprofitable.
Entrepreneurs who maximize their economic profits have a special place in their hearts.
When the minimum cost of production is equal to the price of computers, price and profit declines will stop.
The supply curve stops shifting when firms no longer have an incentive to enter the industry.
The next page summarizes the profit-maximizing rules that bring about this long-run equilibrium.
At a price of $700 per computer, the total profits were much lower than they had been earlier.
Firms will want to enter the industry.
The level of minimum ATC will determine whether the profit market price will fall.
Once a long-run equilibrium is established, it will continue until technological progress reduces the cost of computer production.
That's what happened in the computer market.
Firms could expect to fetch higher prices if features are added to the basic microcomputer.
Cost reductions would allow firms to widen their profit margins at existing prices or to reduce prices and increase sales.
The second strategy wouldn't require assembling more complex computers or risk consumer rejection of an upgraded product.
Both product development strategies were pursued.
Two distinct markets were created.
Simple household record keeping, games, and elementary programming were limited by the limited capabilities of that basic home computer.
The personal computer route was chosen by Apple.
The memory of the Apple II grew from 4K to as much as 48K.
In May 1979 it offered a monitor.
Apple stopped making the basic Apple II and instead produced upgraded versions, the Apple IIe, the IIc, and the III.
Hundreds of other companies followed Apple's lead.
While one pack of entrepreneurs was chasing PC profits, another pack was going after the profits still available in home computers.
The basic Apple II look-alike was continued by this group because they wanted to profit from greater efficiency, lower costs, and increased sales.
The home computer market faced fierce price competition.
The amount of labor required for computer assembly can be decreased by fewer chips.
More powerful chips were the key to lower manufacturing costs.
The computer's "brain" capabilities were doubled when 16-bit chips were developed.
Figure 23.7 takes over where Figure 23.5 left off.
The market price of computers was $700 by the beginning of 1980.
Reducing costs was the only way to improve profitability.
The lower cost structure increases the profitability of computer production.
The rate of output increased as a result of the improvements.
Home computer prices fell because of improved technology and fierce competition.
The rush into computer production was back.
The market implications of another entrepreneurial event should be obvious.
The market supply curve shifted to the right as more and more firms tried to get in on the action.
Computer prices fell further down the curve as output increased.
Table 23.3 shows the decline in home computer prices after 1980.
Texas Instru ments produced home computers in 1980.
TI sold its basic home computer for $650 in 1980.
TI had to reduce its price to $525 in early 1981 in order to maintain unit sales despite modest improvements in the TI machine.
The output of new entrants and existing companies pushed the market prices down further to around $400.
Home computer manufacturers were making handsome profits even at $400.
In the fourth quarter of 1981 industry sales were ten times the volume sold the previous year.
The profits were good.
The home computer market made a lot of money.
The consequences of the continued competition for those "boundless" profits are shown in the rest of Table 23.3 Between December 1981 and January 1983, the retail price of home computers fell from $400 to $149.
The profit margins were razor-thin.
Atari's fourth-quarter profits fell from $137 million in 1981 to $1.2 million in 1983.
That did not stop the competitive process.
Since other companies would quickly take up the slack, they had little choice but to do so.
Despite decreasing profit margins, industry output kept increasing.
The prices of computers were always lower because of the increased quantity supplied.
TI was losing $300 million per year by the time computer prices reached $100.
The company realized in September 1983 that the price would no longer cover average variable costs.
If a firm is no longer able to cover variable costs, it should stop production.
The company had an inventory of nearly 500,000 unsold minimum AVC at the time of the shutdown.
In order to unload them, TI reduced its price to $49, which resulted in lower prices and losses for other computer firms.
At the time of its introduction, the PCjr had a list of up-and-down struggle to revive its home computer by $1,269, depending on the model.
Next month it will stop making the product.
During the Christmas promotion, IBM's most visible product failure was below the $800 level.
The campaign is believed to have made over 40 million dollars.
IBM's efforts to DOW JONES & COMPANY, Inc. ranged from technical changes to steep price.
Firms are forced to improve products and lower prices.
Firms that can't keep up are forced to shut down.
Scores of smaller companies also withdrew from the home computer market.
Between 1983 and 1985 the exit rate was the same as the entry rate.
Competition in the PC market was limited to product improvements.
Firms added more memory, faster microprocessors, better monitors, expanded operating systems, new applications software, and other features.
The source of most product innovations were the new entrants into the market.
The price competition in the PC market was caused by the influx of new firms and products.
Firms were forced to offer price discounts because they couldn't sell all of their PCs at prevailing prices.
The slide down the demand curve accelerated as the discounts spread.
Scores of firms stopped production when prices fell below average variable cost.
The "high road" to avoid price competition in home computers was slowed by the visit of the Computer History Association.
Competition in the computer market gave consumers benefits.
500 million home and personal computers have been sold.
Technology has made personal computers 400 times faster than the first Apple IIs, with 600 times more memory.
The Apple I of 1976 was made to look prehistoric by the iMac computer.
The evolution of personal computers from the Apple I to the latest iMac and iPhone was driven by intense competition.
Maybe an abundance of inexpensive computers would have been produced in other markets as well.
The process works in India as well as in the United States.
The high price and profits signal to profit-hungry entrepreneurs the information they need to fulfill consumer demands.
Resources are being reallocated to produce that desired mix, as a result of the competitive squeeze on those same profits.
Consumers get more of the goods they want in a competitive market.
Competitive markets are able to allocate resources efficiently because of the way competitive prices are set.
A competitive market gives us the information we need to make choices.
In order to obtain always strive to produce at the rate of output at which price equals marginal cost, because competitive firms are forgone.
He said rates are set to fall further this fiscal year as competition heats up in one of the world's, though most likely at a slower pace.
On September 1, 2004, there was a p. 87.
The 2004 edition of DOW JONES & COMPANY, INC.'s Copyright resembles some of the most competitive markets.
Companies are forced to improve products and cut prices.
Society can answer the WHAT-to-produce offer of goods at prices that are efficient.
The marginal cost is the amount consumers are willing to pay for a good.
When the long-run equilibrium has been achieved, a good from the resources used in production can be found.
The FOR WHOM question is affected by competitive pressures.
This doesn't mean that producers aren't given their due.
New products, consumer demands change, and more efficient production processes are some of the reasons why the zero-profit limit is rarely reached.
The competitive process creates strong pressures to pursue innovation.
The adage about the early bird getting the worm is applicable in a competitive market.
The ones who made the greatest profits were the ones who first saw the potential profitability of computer production.
New suppliers are attracted by economic profit.
The curve shifts to the right.
Increased quantities of the desired product are pro duced and the price is lower when a new equilibrium is reached.
The average cost of production is close to a minimum and much more of the product is supplied and consumed.
Producers experience great pressure throughout the process to keep ahead of profit, a pressure that often results in product and techno Competitive Pressures.
More firms will enter the industry if economic profits exist in the industry.
The supply curve will shift to the right.
Entry will cease if no economic profits exist.
There must be equilibrium on the market demand curve.
The most successful firm can't rest on its laurels for long.
Competitive firms must continually update technology, improve their product, and reduce costs to stay in the game.
A lot of entrepreneurs learned from the sudden rise and quick death of "dot.com" companies.
Competition went beyond computers and dot.com companies.
Steve Jobs started the personal computer business in 1977.
The iPod was introduced in 2001.
The first mass-produced portable music player was the iPod.
Consumers could download, store, and retrieve up to 1,000 songs.
It was an instant success because of its small size, sleek design, and simple functions, and Apple was able to make huge profits from it.
The scent of iPod's profits quickly spread among other entrepreneurs.
Competitors were designing their own music players in a matter of months.
In 2003 the "attack of the iPod clones" was in full force.
Major players such as Sony, Dell, and Creative Technology brought mp3 players to the market.
Competitors were reducing prices and adding new features.
Its design is very similar to iPod.
Since its debut two years ago next month, these products are nearly as small as brilliant, and have a similar user interface.
Some are less expensive than others.
Before and since the iPod, there have been other high-capacity digital music players.
They were too big and clumsy to use, so they were reproduced.
Apple improved the iPod, making it smaller and more capable.
Products improve and prices fall as competition increases.
Apple couldn't afford to sit back and watch its profits.
Steve Jobs knew he had to keep running to stay ahead of the pack.
He continued to improve the iPod.
Apple had three generations of iPods within 2 years, each substantially better than the last.
Features were added and the memory capacity was increased.
The price of the iPod fell by 40 percent in less than 2.5 years.
Producers are forced to improve their products because of new entrants and intense competition.
There were at least 60 iPod clones in the market by mid-2007.
Rivals were using flash memory chips instead of hard disks to cut costs.
Microsoft launched a new mp3 player called "Zune" to interface with its Media Player software.
A $60 digital music player was offered by Sony.
Apple has to reduce its price and improve the iPod in order to keep the pressure on.
Apple increased iPod's memory, added video downloads of feature films, and kept dropping prices.
By the time you graduate, stripped-down iPods will be selling for $29 or less.
Look at the price and quality history of personal computers.
Producers are forced to deliver better products at lower prices because of the pressure of competition.
The economy will be driven by the same kind of competitive force tomorrow.
A perfectly competitive firm can't change the average total cost.
The long-run equilib market price of the product it sells.
The competitive firm is maximized by profit.
If marginal costs equal economic losses, firms will leave the industry.
Firm is the most distinctive thing about competitive markets.
They exert pressure on prices and profits.
Firms will enter the market if there is competition.
The shift of supply producers to respond quickly to consumer demands will cause market prices to go down.
As prices fall, the profit of the industry and its competitive markets do best what markets are supposed to do.
What industries do you like to work in?
What would happen to iPod sales if Apple 4.
There are numerical and graphing problems in the Student Problem Set at the back of the book.
Review flashcards and saved quizzes
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