Perfect Competition

Perfect competition

Short-run equilibrium of firm and industry (profit maximising)

Short-run equilibrium of industry and firm under perfect competition

P
S

MC

AC

Pe

AR AC

D = AR = MR

O
Q (millions)

Qe Q (thousands)

(a) Industry

(b) Firm

Perfect competition

The industry supply curve

Deriving the short-run supply curve

P
P1 P2 P3

a b c D1

MC = S D1 = MR1 D2 = MR2 D3 = MR3

D3 O
Q (millions)

D2

Q (thousands)

(a) Industry

(b) Firm

Perfect competition

Long-run equilibrium

Long-run equilibrium under perfect competition

Profits return Supernormal profits New firms enter to normal
P
S1 Se LRAC P1 PL AR1 D1 DL

ARL

O
Q (millions)

QL Q (thousands)

(a) Industry

(b) Firm

Long-run equilibrium of the firm under perfect competition

(SR)MC (SR)AC

LRAC

DL AR = MR

LRAC = (SR)AC = (SR)MC = MR = AR