Perfect Competition part III Chapter 14 completion

Competitive Market Supply Curves Short-Run Supply Curve Min. of AVC & Above P < AVC shutdown Long-Run Supply Curve Min. of ATC & Above P < ATC Exit

Short Run Increase in Demand Firms produce more & earn a short run profit Increase in market demand => ↑ price & quantity Market 1-Firm Price Price D 2 MC S 1 ATC Q2 B Q 2 P B D 1 P 2 Q 1 A Q 1 A P1 P 1 Quantity (market) Quantity (firm) This is not a long run equilibrium!

Long Run Impact Economic Profit induces new firms to enter market => supply increases Entire Market 1 Firm Price Price D 2 MC S1 ATC B P2 S 2 A Q 3 C Q 1 A Long-run supply P 1 P 1 D1 Q1 Q2 Quantity (firm) Quantity (market) In the long run market price is restored, but market supply is greater. Return to min. of ATC! The increase in supply lowers market price.

Long-Run Market Supply Curve Is Horizontal at the minimum of ATC Market will deliver any quantity at that price Firm’s s Zero-Profit Condition ’ Market Supply Price Price Entry/Exit cease enough supply to satisfy any demand MC ATC P = minimum ATC Long Run Supply Curve Quantity (firm) Quantity (market)

Practice Multiple Choice Test Perfect Competition Equilibrium