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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

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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

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

Perfectly Competitive Industry

\$/q

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

Q1

(thousands)

(milllions)

Perfectly Competitive Firm

Perfectly Competitive Industry

\$/q

CONSTANT-COST INDUSTRY

\$/q

MC

S0

LATC

S1

ATC

P1

P0

LRS

D1

D0

0

q0

q1

Q0

Q1

Q2

(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

Q1

(thousands)

(milllions)

Perfectly Competitive Firm

Perfectly Competitive Industry

New Long-Run Equilibrium:

Entry Causes Price to Fall and Costs to Rise

\$/q

MC1

\$/q

Price goes down

LATC1

MC0

S0

ATC1

S1

P1

ATC0

LATC0

P2

P0

Costs go up.

D1

D0

0

q0

q1

Q0

Q1

Q2

(thousands)

(milllions)

q2

Perfectly Competitive Firm

Perfectly Competitive Industry

INCREASING-COST INDUSTRY

\$/q

MC1

\$/q

Price goes down

LATC1

MC0

S0

ATC1

S1

P1

ATC0

LATC0

LRS

P2

P0

Costs go up.

D1

D0

0

q0

q1

Q0

Q1

Q2

(thousands)

(milllions)

q2

Perfectly Competitive

Firm

Perfectly Competitive

Industry

\$/q

\$/q

MC

S0

ATC

LATC

P0

D0

0

q0

Q0

(thousands)

(milllions)

Perfectly Competitive

Firm

Perfectly Competitive

Industry

\$/q

\$/q

MC

S0

ATC

LATC

P1

P0

D1

D0

0

q0

q1

Q0

Q1

(thousands)

(milllions)

Perfectly Competitive Firm

Perfectly Competitive Industry

New Long-Run Equilibrium:

Entry Causes Price to Fall and Costs to Fall

\$/q

\$/q

MC0

LATC0

D1

S0

ATC0

P1

MC1

LATC1

P0

ATC1

S1

P2

D0

0

q0

q1

Q0

Q1

Q2

(thousands)

(milllions)

Perfectly Competitive

Firm

Perfectly Competitive

Industry

\$/q

\$/q

LATC0

D1

MC0

S0

ATC0

P1

MC1

LATC1

P0

S1

ATC1

P2

D0

0

q0

q1

Q0

Q1

Q2

(thousands)

(milllions)

Decreasing-Cost Industry

\$/q

Perfectly Competitive

Industry

Perfectly Competitive

Firm

\$/q

LATC0

D1

MC0

S0

ATC0

P1

MC1

LATC1

P0

S1

ATC1

P2

D0

0

q0

q1

Q0

Q1

Q2

(thousands)

(milllions)