Here is a brief summary of what we've learned about how perfectly
competitive industries adjust to long run equilibrium.
- A change in demand alone doesn't change long run price.
- If demand increases or decreases the number of firms in the industry
adjust in the long run to keep price at the minimum of ATC, so that profits are zero.
- Industry supply only shifts in the long run due to entry or exit.
- Industry supply is the sum of the firms supplies. Only in the long run is there time for firms to enter or exit the industry.
A change in variable costs is the only way in which the industry supply curve can shift in the short run.
- In the short run the MC curve can shift due to a change in variable costs . This shifts industry supply, since industry is the sum of the
firms and the MC curve (above AVC) is the firm's supply curve.
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