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Short and Long Run equilibrium

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Draw graphs showing a perfectly competitive firm and industry in long-run equilibrium.
a). How do you know that the industry is in long-run equilibrium?

b). Suppose that there is an increase in demand for this product. Show and explain the short-run adjustment process for both the firm and the industry.

c). Show and explain the long-run adjustment process for both the form and the industry. What will happen to the number of firms in the new long-run equilibrium?

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Solution:

Draw graphs showing a perfectly competitive firm and industry in long-run equilibrium.

The above graph represents perfectly competitive firm and industry in long run equilibrium.

a). How do you know that the industry is in long-run equilibrium?

We can see from above graph that Price=MC=minimum of ATC
This is a typical ...

Solution Summary

Solution describes the long run equilibrium position for perfectly competitive firm and industry. It also discusses the effect of increase in demand for both the firm and the industry in short and long run. Concept is explained with suitable graphs.

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