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SUPPLY BEHAVIOR IN COMPETITIVE INDUSTRIES
By: Group-6Hitendrasinh Zala Ruchi Gattani
Shoaib Qureshi Ketan Changani
Vishal Bhatnagar
SHORT-RUN INDUSTRY SUPPLY
• Demand shifts produce greater price adjustments and smaller quantity adjustments than they do in the long run
Market equilibrium:1. Short-run equilibrium :
When any change in output must use the same fixed amount of capital
SHOR-RUN EQUILIBRIUM
D’
D’
D
D
E
E’
Ss
Ss
0 Q
P
Quantity
Pric
e
Market Equilibrium
2. Long-run equilibrium:When capital and all other factors are variable and there is free entry and exit of firms from the industry
LONFG-RUN EQUILIBRIUM
D’
D’
D
D
E
E’
SL
0 Q
P
Quantity
Pric
e
SL
What happen if LRP below this critical zero-profit level?
• The short-run market supply curve will shift to the left, and the price will rise
• The short-run market supply curve will shift to right, and price falls
THE LONG-RUN FOR A COMPETTITIVE INDUSTRY
• All cots are variable• Firms will produce only when price is at or
above the zero- profit condition where price equals average cost
• There are more firms• Its leads towards the zero profit point
ZERO-PROFIT LONG RUN EQUILIBRIUM
• In a competitive industry populated by identical firms with free entry and exit, the long –run equilibrium condition is that price equals marginal cost equals the minimum long-run average cost for each identical firm:P = MC = Minimum long-run AC = zero profit price
CONCLUSION
• The competition among the firms leads industries towards zero profit long run state
• Competitive firm earn normal return on their investment
• It reduce profit toward zero• No economical profit in perfect competitive
industry