1. Perfect Competition part III
Chapter 14 completion

2. Competitive Market Supply Curves
Short-Run Supply Curve
Min. of AVC & Above
P < AVC shutdown
Long-Run Supply Curve
Min. of ATC & Above
P < ATC Exit

3. Short Run Increase in Demand
Firms produce more &
earn a short run profit
Increase in market demand =>
↑ price & quantity
Market
1-Firm
Price
Price D 2 MC S 1
ATC Q2 B Q 2 P B D 1 P 2 Q 1 A Q 1 A P1 P 1
Quantity (market)
Quantity (firm)
This is not a long run equilibrium!

4. Long Run Impact
Economic Profit induces new firms to enter market => supply increases
Entire Market
1 Firm
Price
Price D 2 MC S1
ATC B P2 S 2 A Q 3 C Q 1 A
Long-run
supply P 1 P 1 D1 Q1 Q2
Quantity (firm)
Quantity (market)
In the long run market price is restored, but market supply is greater. Return to min. of ATC!
The increase in supply lowers market price.

5. Long-Run Market Supply Curve
Is Horizontal at the minimum of ATC
Market will deliver any quantity at that price
Firm’s
s Zero-Profit Condition ’
Market Supply
Price
Price
Entry/Exit cease
enough supply to
satisfy any demand MC
ATC P
= minimum
ATC
Long Run Supply Curve
Quantity (firm)
Quantity (market)

6. Practice Multiple Choice Test
Perfect Competition Equilibrium