LONG-RUN OUTCOMES IN PERFECT COMPETITION
New firms enter as long as there is
economic profit (P > min ATC).
The long-run market equilibrium of a perfectly competitive industry is
efficient: no mutually beneficial transactions go unexploited.
The short-run industry supply curve:
how the Q supplied by an industry depends on the market price (given a fixed number of producers).
short-run industry supply curve shows
how the quantity supplied by an industry depends on the market price given a fixed number of producers.
If P > break-even (min ATC), firms are
profitable
A higher price attracts new entrants in the long run,
raising industry output and lowering price.
A fall in price induces existing producers to exit in the long run,
reducing industry output and raising price.
A market is in long-run equilibrium when
the quantity supplied equals the quantity demanded, given that sufficient time has elapsed for entry into and exit from the industry to occur.
here is a short-run market equilibrium when
the quantity supplied equals the quantity demanded, taking the number of producers as given.
industry supply curve shows
the relationship between the price of a good and the total output of the industry as a whole.
In a perfectly competitive industry in equilibrium, the value of marginal cost is
the same for all firms.
In a perfectly competitive industry with free entry and exit, each firm will have
zero economic profit in long-run equilibrium.