Constant-Cost Industry

$
Increase in demand increases market price and firm output Positive profits cause market supply to increase and price to fall

Q1 increases to Q2. Long-run supply = SL = LRAC. Change in output has no impact on input cost.

MC

AC

S1 P2
P1

S2

P2
P1

SL

D1
q 1 q2
Chapter 8

D2
Output

Output
1

Q1

Q2

Long-run Supply in an Increasing-Cost Industry

Due to the increase in input prices, long-run equilibrium occurs at a higher price. Long Run Supply is upward Sloping

SMC2

SMC1

LAC2

S1 S2 P2 P3 P1

SL

P2 P3 P1

LAC1

D1 q1
Chapter 8

D2
Output

q2

Output
2

Q1 Q2 Q3

Long-run Supply in a Decreasing-Cost Industry

$
Due to the decrease in input prices, long-run equilibrium occurs at a lower price. Long Run Supply is Downward Sloping

SMC1

S1
SMCLAC 2 1 LAC2 P2

S2

P2 P1 P3

P1 P3

SL D1 D2
Output

q1 q2
Chapter 8

Output
3

Q1 Q2 Q3