Suppose all firms in this industry are essentially identical to the one shown. Is this a long run equilibrium? If P > ATC for the typical firm in the industry then firms are earning economic profits, shown by the shaded area. This means that firm owners are earning more than they would in their next best alternative. This industry is a better than typical investment.

   If investing in an industry is profitable and if entry is free, then firms will enter the industry. This means that we can't be in a long run equilibrium.

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