perfectly competitive market long run supply shift

As a result, the demand curve shifts to the right from D 1D 1 to, say, D 2D 2 in part (b) of each figure.Ĭonsequently, the initial equilibrium situation is disturbed, for now at price, p 1, demand would be greater than supply. Let us now suppose that there is a disturbance in the market in the form of an increase in the demand for the product. Since the point T 1 gives us a combination of the price of the product (p 1) and the industry’s long-run equilibrium supply (p 1T 1), T 1 is a point on the SRS 1 curve and also on the long run supply curve of the industry. Therefore, the initial market equilibrium or demand-supply equilibrium point is T 1 where we have obtained the price of the product to be p 1 (or, Op 1) and at this price industry’s short-run and long-run supply, ON 1 = p 1T 1 (which is equal to each firm’s short-run and long-run supply, q 1, multiplied by the number of firms) has been equal to the market demand for the industry’s product. Now, in part (b) of each figure, we see that the demand curve for the product, D 1D 1, has intersected the SRS 1 curve of the industry at the point T 1 (p 1, ON 1), to determine the price p 1 of the product. In each of these figures, we have assumed that in the initial situation, the price of the product is p, and at this price, the competitive firm is in short-run as well as in long- run equilibrium at the point E 1 (p 1, q 1), and producing an output of q 1, in part (a) of each of these figures, and so, the industry also is in long-run equilibrium.Į 1 is the minimum point of the LAC 1 and the SAC 1 curves of the firm where the AR 1 = MR 1 line has touched these two curves, and here the firm is earning only normal profit, since we have LAC = SAC = AR = p.

We shall derive the industry’s long run supply curves in the above three cases with the help of Figs.

(III) The LRS curve of a constant cost industry.

Perfectly competitive market long run supply shift