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    PPT Long Run Equilibrium in Perfect Competition

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    Benedek Reisz

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    © All Rights Reserved
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    PPT Long Run Equilibrium in Perfect Competition

    Uploaded by

    Benedek Reisz
    4 views8 pages

    Original Title

    10804 ppt Long run equilibrium in perfect competition

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    Copyright:

    © All Rights Reserved
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    4 views8 pages

    PPT Long Run Equilibrium in Perfect Competition

    Uploaded by

    Benedek Reisz

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
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    LÁSZLÓ OSVÁTH

    Long run equilibrium in perfect


    competition

    Economics 1

    BBS FCHT
    Department of Economics and Business Studies
    Budapest
    Long run equilibrium price in perfect competition

    One firm Industry


    D
    Costs and prices

    Zero-profit point S

    Price (P)
    AC MC

    60 HUF 60 HUF
    p = MR
    S
    D

    100 q 10 million Quantity (Q)

    A firm in perfectly competitive This is because of free entry


    industry produces where price and exit condition!
    equals AC minimum. It can
    earn zero economic profit in
    long run.
    Assume: this is a cabbage market

    One firm Industry


    D
    Costs and prices

    Zero-profit point S

    Price (P)
    AC MC

    60 HUF 60 HUF
    p = MR
    S
    D

    100 q 10 million Quantity (Q)

    Medical report comes out


    showing that cabbage What will happen in this
    system?
    consumption is good against
    overweight.
    Assume: this is a cabbage market

    One firm Industry


    D’
    D S
    (C, p)

    P
    AC MC

    80 HUF 80 HUF

    60 HUF 60 HUF
    p = MR
    D’
    S
    D

    100 qoptimum q 10 million Quantity (Q)

    1st step: Industry’s demand Price and quantity increase. Higher


    curve moves to the right! economic profit can be realized
    than zero in short run.
    Assume: this is a cabbage market

    One firm Industry


    D’
    D S
    (C, p)

    P
    S’
    AC MC

    80 HUF 80 HUF

    60 HUF 60 HUF
    p = MR
    D’
    S
    D
    S’

    100 qoptimum q 10 million Quantity (Q)

    2nd step: New firms enter the This drives the price back down to
    industry. Supply curve moves 60 HUF and economic profits back
    to the right. to zero. This can be realized in long
    run.
    Assume: this is a cabbage market

    One firm Industry


    D
    Costs and prices

    Zero-profit point S

    Price (P)
    AC MC

    60 HUF 60 HUF
    p = MR
    S
    D

    100 q 10 million Quantity (Q)

    Medical report comes out


    showing that cabbage What will happen in this
    system?
    consumption increases
    possibility of heart desease.
    Assume: this is a cabbage market

    One firm Industry


    D S
    (C, p)

    P
    D’
    AC MC

    p = MR
    60 HUF 60 HUF
    50 HUF 50 HUF
    S
    D
    D’

    100 q 10 million Quantity (Q)

    1st step: Industry’s demand Price and quantity decrease. Lower


    curve moves to the left! economic profit than zero (loss) can
    be realized in short run.
    Assume: this is a cabbage market

    One firm Industry


    D S’ S
    (C, p)

    P
    D’
    AC MC

    p = MR
    60 HUF 60 HUF
    50 HUF 50 HUF
    S
    D
    D’

    100 q 10 million Quantity (Q)

    2nd step: Some firms leave This drives the price back up to 60
    the industry. Supply curve HUF and economic profits back to
    moves to the left. zero. This can be realized in long
    run.

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