Perfect competition and the supply curve - the industry supply curve - the long run industry supply curve
12 important questions on Perfect competition and the supply curve - the industry supply curve - the long run industry supply curve
When does the additional producer enter the market?
What will happen when the additional producers enter the industry? what will happen to the total industry output?
- The quantity supplied at any given price increases
- the SRSC will shift to the right
- this will result in a lower market price
- existing firms will respond the the lower market price by reducing their output
- the total industry output will increase because of the large number of firms
What is a situation in which the quantity supplied equals the quantity demanded giver that sufficient time has elapsed for producers to either enter of exit the industry
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Where does increased industry output come from?
What will happen at price = the supply curve 3=D? And what do we call the equilibrium?
- At this price there is no incentive either for potential to enter and existing producer to exit the industry.
- the new equilibrium where S3 = the demand, and that equilibrium is equals to the market price is the LRME
What will happen to the industry in the long run when demand increases?
over time entry will cause the SRSC of the industry to shift to the right
the firms reduce its output in response to the fall in the market
ultimately arriving back to its original output, the break even point or the minATC
every firm is now in the industry and everyone is making zero economics profit
What is the relationship between the quantity supplied by an industry responds to the price given to that producers have had time to enter or exit the industry? What is the shape of the supply curve?
it is a horizontal line
What do we call it when each firm regardless of whether it is a new entrant or it exits they face the same cost.
When can long run industry supply curve slope upward?
this can only be the case for oligopoly and monopoly
What happens to entry or exit when there is a rise in price?
- becasue a high price caused by an increase in demand
- attracts new producers,
- resulting in a rise in industry output and
- an eventual fall in price
When can long run industry supply curve slope upward?
the industry expand, the price of that input is driven up
later entrants in the industry find that they have higher cost structures than early entrants
Whether the LRSC is horizontal, upward sloping or even downward sloping what happens to the long run industry supply curve and the long run price elasticity of supply when there is free entry and exit?
- The long run industry supply curve is always flatter than the short run industry supply curve
- The long run price elasticity of supply is always higher than the short run price elasticity of supply
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