University of Hawai‘i at
Mānoa
Department of Economics
ECON 130 (003): Principles of Economics
(Micro)
http://www2.hawaii.edu/~lindoj
Gerard Russo
Lecture #22
Thursday, April 1, 2004
LECTURE 22
The Perfectly Competitive Firm in the
Long-Run
The Perfectly Competitive Industry in
the Long-Run: Long-Run Supply
Constant-Cost Industry
 Increasing-Cost Industry
 Decreasing-Cost Industry

Perfectly Competitive Firm
$/q
Perfectly Competitive Industry
Long-Run Equilibrium: P=AR=MR=MC=ATC=LATC
$/q
MC
ATC
S0
LATC
P0
D0
0
q0
Q0
(thousands)
(milllions)
Perfectly Competitive Firm
Perfectly Competitive Industry
$/q New Short-Run Equilibrium: P=AR=MR=MC>ATC>LATC
$/q
MC
S0
ATC
P1
LATC
P0
D1
D0
0
q0 q1
Q0
(thousands)
Q1
(milllions)
Perfectly Competitive Firm
$/q
Perfectly Competitive Industry
CONSTANT-COST INDUSTRY
$/q
MC
S0
LATC
S1
ATC
P1
P0
LRS
D1
D0
0
q0 q1
Q0
(thousands)
Q1
Q2
(milllions)
Perfectly Competitive Firm
Perfectly Competitive Industry
$/q New Short-Run Equilibrium: P=AR=MR=MC>ATC>LATC
$/q
MC
S0
ATC
P1
LATC
P0
D1
D0
0
q0 q1
Q0
(thousands)
Q1
(milllions)
Perfectly Competitive Firm
Perfectly Competitive Industry
New Long-Run Equilibrium:
$/q
Entry Causes Price to Fall and Costs to Rise
MC1
$/q
Price goes down
LATC1
MC0
S0
ATC1
S1
P1
ATC0
LATC0
P2
P0
D1
Costs go up.
D0
0
q0 q q 1
2
(thousands)
Q0
Q 1 Q2
(milllions)
Perfectly Competitive Firm
Perfectly Competitive Industry
INCREASING-COST INDUSTRY
$/q
MC1
$/q
Price goes down
LATC1
MC0
S0
ATC1
S1
P1
ATC0
LATC0
LRS
P
2
P0
D1
Costs go up.
D0
0
q0 q q 1
2
(thousands)
Q0
Q 1 Q2
(milllions)
$/q
Perfectly Competitive
Firm
Perfectly Competitive
Industry
$/q
MC
S0
ATC
LATC
P0
D0
0
q0
Q0
(thousands)
(milllions)
$/q
Perfectly Competitive
Firm
Perfectly Competitive
Industry
$/q
MC
ATC
P1
S0
LATC
P0
D1
D0
0
q0 q1
Q0
(thousands)
Q1
(milllions)
Perfectly Competitive Firm
Perfectly Competitive Industry
New Long-Run Equilibrium:
$/q
Entry Causes Price to Fall and Costs to Fall
$/q
MC0
LATC0
D1
S0
ATC0
P1
MC1
P0
ATC1
LATC1
S1
P2
D0
0
q0 q1
Q0
(thousands)
Q1
Q2
(milllions)
$/q
Perfectly Competitive
Firm
Perfectly Competitive
Industry
$/q
MC0
LATC0
D1
S0
ATC0
P1
MC1
P0
ATC1
LATC1
S1
P2
D0
0
q0 q1
Q0
(thousands)
Q1
Q2
(milllions)
Decreasing-Cost Industry
$/q
Perfectly Competitive
Firm
MC0
$/q
LATC0
Perfectly Competitive
Industry
D1
S0
ATC0
P1
MC1
P0
ATC1
LATC1
S1
P2
D0
0
q0 q1
Q0
(thousands)
Q1
Q2
(milllions)