How do entry costs affect the long-run equilibrium in a market?
In this example you will see that one way entry costs can affect the long-run equilibrium in a market is to increase the long-run equilibrium price in that market. Suppose that under a bilaterally negotiated agreement, any US business can set up a firm manufacturing computers in an imaginary country, New Land. Therefore, there are no barriers-to-entry for firms in the United States. Currently, no firms in New Land are manufacturing computers. Production will be for consumers in New Land alone. The potential market demand per year in New Land GRAPHIC Filename: 4_6_static_popup3_equation1 The production cost for any firm that produces in New Land will be given by the following equation: GRAPHIC Filename: 4_6_static_popup3_equation2 Here Q is the quantity of computers. Each firm can only produce a maximum of 100 computers due to capacity constraints. In addition, each firm will have to pay a sum of $1,000 in each year of operation for a licence to produce and sell computers in New Land. T
