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    Reader - Micro I II - 5

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    Samuel Abdurahman
    1) In the long run, firms attain equilibrium where average revenue (AR) equals marginal revenue (MR) and both equal long run marginal cost (LMC), long run average cost (LAC), short run marginal cost (SMC), and short run average cost (SAC). 2) For an industry to be in equilibrium, the quantity demanded must equal the quantity supplied. 3) Equilibrium is achieved when all firms produce at the minimum point of their long run average cost curve, earning only normal profits. Under these conditions, there will be no further entry or exit of firms in the industry given technology and factor prices.

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    Reader - Micro I II - 5

    Uploaded by

    Samuel Abdurahman
    16 views1 page
    1) In the long run, firms attain equilibrium where average revenue (AR) equals marginal revenue (MR) and both equal long run marginal cost (LMC), long run average cost (LAC), short run marginal cost (SMC), and short run average cost (SAC). 2) For an industry to be in equilibrium, the quantity demanded must equal the quantity supplied. 3) Equilibrium is achieved when all firms produce at the minimum point of their long run average cost curve, earning only normal profits. Under these conditions, there will be no further entry or exit of firms in the industry given technology and factor prices.

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    Reader_Micro I II - 5 (2)

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    1) In the long run, firms attain equilibrium where average revenue (AR) equals marginal revenue (MR) and both equal long run marginal cost (LMC), long run average cost (LAC), short run marginal cost (SMC), and short run average cost (SAC). 2) For an industry to be in equilibrium, the quantity demanded must equal the quantity supplied. 3) Equilibrium is achieved when all firms produce at the minimum point of their long run average cost curve, earning only normal profits. Under these conditions, there will be no further entry or exit of firms in the industry given technology and factor prices.

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    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    16 views1 page

    Reader - Micro I II - 5

    Uploaded by

    Samuel Abdurahman
    1) In the long run, firms attain equilibrium where average revenue (AR) equals marginal revenue (MR) and both equal long run marginal cost (LMC), long run average cost (LAC), short run marginal cost (SMC), and short run average cost (SAC). 2) For an industry to be in equilibrium, the quantity demanded must equal the quantity supplied. 3) Equilibrium is achieved when all firms produce at the minimum point of their long run average cost curve, earning only normal profits. Under these conditions, there will be no further entry or exit of firms in the industry given technology and factor prices.

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    © All Rights Reserved
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    of 1

    Panel (A) Panel (B)

    S1
    SMC1 SAC1
    P1 E1 S2 P1 E1 AR=MR LMC

    SMC2 SAC2 LAC


    P2 E2 P2 E2 AR=MR
    D1
    0 Q1 Q2 0 q1 q2

    Fig 5.9: Long–run equilibrium of the firm

    Given the new equilibrium market prices OP2, firms attain their equilibrium in
    the long run where AR = MR = LMC = LAC = SMC = SAC. That is, firms in the
    industry reach their equilibrium position in the long run where both short run
    and long run equilibrium condition coincide.

    Equilibrium of the Industry [LR]

    An important condition for the industry to be in equilibrium is that it produces


    the level of output at which the quantity demanded equals to the quantity
    supplied of a product.

    This is achieved at which all firms are in equilibrium producing at the minimum point of
    their LAC curve and making just normal profits. Under these condition there is no
    further entry or exit of firms in the industry, given the technology and factor prices.

    DD SS SAC SMC LMC LAC

    Pe E

    0 Qe 0 q1

    Fig 5.10: Equilibrium of the industry

    52

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