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University of Hawai‘i at MānoaDepartment of Economics
ECON 130 (003): Principles of Economics (Micro)
http://www2.hawaii.edu/~lindoj
Gerard Russo
Lecture #22
Thursday, April 1, 2004
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LECTURE 22The Perfectly Competitive Firm in the Long-Run
The Perfectly Competitive Industry in the Long-Run: Long-Run SupplyConstant-Cost Industry Increasing-Cost IndustryDecreasing-Cost Industry
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(milllions)(thousands)
$/q
$/q
Perfectly Competitive Firm
Perfectly Competitive Industry
MC
LATCS0
P0
Q0q00
ATC
D0
Long-Run Equilibrium: P=AR=MR=MC=ATC=LATC
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(milllions)(thousands)
$/q
$/q
Perfectly Competitive Firm
Perfectly Competitive Industry
MC
LATC
S0
P0
Q0q00
ATC
D0
New Short-Run Equilibrium: P=AR=MR=MC>ATC>LATC
D1
Q1
P1
q1
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(milllions)(thousands)
$/q
$/q
Perfectly Competitive Firm
Perfectly Competitive Industry
MC LATC S0
P0
Q0q00
ATC
D0
D1
Q1
P1
q1
S1
Q2
LRS
CONSTANT-COST INDUSTRY
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(milllions)(thousands)
$/q
$/q
Perfectly Competitive Firm
Perfectly Competitive Industry
MC
LATC
S0
P0
Q0q00
ATC
D0
New Short-Run Equilibrium: P=AR=MR=MC>ATC>LATC
D1
Q1
P1
q1
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(milllions)(thousands)
$/q
$/q
Perfectly Competitive Firm
Perfectly Competitive Industry
MC0
LATC0
S0
P0
Q0q00
ATC0
D0
New Long-Run Equilibrium: Entry Causes Price to Fall and Costs to Rise
D1
Q1
P1
q1
S1
Q2
LATC1
ATC1
MC1
q2
P2
Costs go up.
Price goes down
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(milllions)(thousands)
$/q
$/q
Perfectly Competitive Firm
Perfectly Competitive Industry
MC0
LATC0
S0
P0
Q0q00
ATC0
D0
D1
Q1
P1
q1
S1
Q2
LATC1
ATC1
MC1
q2
P2
Costs go up.
Price goes down
LRS
INCREASING-COST INDUSTRY
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(milllions)(thousands)
$/q
$/q
Perfectly CompetitiveFirm
Perfectly CompetitiveIndustry
MC
LATC
S0
P0
Q0q00
ATC
D0
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(milllions)(thousands)
$/q
$/q
Perfectly CompetitiveFirm
Perfectly CompetitiveIndustry
MC
LATC
S0
P0
Q0q00
ATC
D0
D1
Q1
P1
q1
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(milllions)(thousands)
$/q
$/q
Perfectly Competitive Firm
Perfectly Competitive Industry
MC0
LATC0 S0
P0
Q0q00
ATC0
D0
D1
Q1
P1
q1
LATC1
ATC1
S1
Q2
P2
MC1
New Long-Run Equilibrium: Entry Causes Price to Fall and Costs to Fall
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(milllions)(thousands)
$/q
$/q
Perfectly CompetitiveFirm
Perfectly CompetitiveIndustry
MC0LATC0
S0
P0
Q0q00
ATC0
D0
D1
Q1
P1
q1
LATC1
ATC1
MC1
S1
P2
Q2
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(milllions)(thousands)
$/q
$/q
Perfectly CompetitiveFirm
Perfectly CompetitiveIndustry
MC0LATC0
S0
P0
Q0q00
ATC0
D0
D1
Q1
P1
q1
LATC1
ATC1
MC1
S1
P2
Q2
Decreasing-Cost Industry