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    • Thread Starter

    I just need help understanding what the question actually means:

    Consider an Industry where new firms (entrants) have permanently higher costs than existing firms (incumbents). For example, agriculture, since all the best land will be taken first, and so a new farm will be on worse land than existing farms and its costs higher. Outline the effect of a shift out in the demand curve for the good (due to a rise in price of a substitute for example) on existing firms' supply in the short-run, when new firms will enter. Illustrate the level of supernormal profits of existing and new firms and the industry's cost and supply curve in the long-run.

    If anyone can shed any light on this it'd be much appreciated =)
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Updated: November 17, 2008
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