Perfectly competitive firm's supply curve

Factors that Influence supply

1. Changes in firm productivity 2. Changes in ressources 3. Changes in per-unit taxes

Initial decrease in demand - causes demand curve to shift outward to the right

Both price & quantity to decrease (P1<Po | Q1 < Qo)

perfectly competitive firm's supply curve

Firm's wont produce at below short run shutdown point Supply (S) = MC above the intersection with AVEC

Supply reacts to decrease in demand

If demand decreases, supply shifts inward to the left because firms will exit the market P2=Po Q2<Q1<Qo

Supply reacts to increase in demand

If demand increases: Supply shifts outward to the right because more firms will enter the market P2= Po Q2>Q1>Qo

Process starts with industry in long-run equilibrium

Industry is producing at the point where Qd=Qs Qd=Qs is the point where the supply & demand curves intersect Notation for this stage uses the subscript 0

Constant cost industries

Lon run supply curve is perfectly elastic Perfectly elastic (horizontal) supply curve - increase total output without increasing the long-run per unit cost Long run price is constant - any shift in demand is eventually met by just enough entry or exit of suppliers so that long-run price is constant

Initial increase in demand causes curve to shift outward to the right

Price and quantity increase (P1>Po | Q1>Qo)

Long run industry supply

Relationship btw price & quantity supplied by the entire industry once firms have been allowed to enter or exit Long run supply curve is more elastic than the short run supply curves - supply becomes more elastic as time passes

Supply shifts the exact same distance as demand

S&D shifting exactly the same distance results in the price falling back to the price falling back to the original price before the change in demand

Entry & Exit in the Long run

Signals - Convey information & incentivize firms to act apporpriately; profits and losses signal to firms wheter they want to enter or exit a current market Economics profits : Firms enter the market that will cause output to increase, prices to fall and profit to eventually disappear Economic losses : Firms exit the market, that will cause output to decrease, prices to increase and losses to eventuall dsappear Breakeven : When a market is at the breakeven point no firms will enter or exit because the market is giving a normal rate of return Low barriers to entry - The ease of entry and exit in pure competition markets is because of the low barrier to entry. (Iphone market)

Supply will react to the change in demand

Supply curve shifts due to firms entering or exiting the market Subscript 2

Industry supply curve

The summation of all the individual supply curves - Sum of all of the units supplied by the individual firms - Short run supply curve of each firm must be upward slopping because of diminishing marginal product -> Industry supply must be upward sloping

Change in demand that will cause the market demand curve to shift

supply curve is not affected by the change of demand in the short run, only the demand curve shifts at this stage Subscript 1