This presentation is prepared as a part of project.

1. SUPPLY BEHAVIOR IN
COMPETITIVE INDUSTRIES
By: Group-6
Hitendrasinh Zala
Ruchi Gattani
Shoaib Qureshi
Ketan Changani
Vishal Bhatnagar

2. SHORT-RUN INDUSTRY SUPPLY
• Demand shifts produce greater price adjustments
and smaller quantity adjustments than they do in the
long run
 Market equilibrium:
1. Short-run equilibrium :
When any change in output must use the same
fixed amount of capital

3. SHOR-RUN EQUILIBRIUM
P
D’
D
Price
D
0 Q
Quantity

4. Market Equilibrium
2. Long-run equilibrium:
When capital and all other factors are variable
and there is free entry and exit of firms from the
industry

5. LONFG-RUN EQUILIBRIUM
P
D’
D
Price
D
0 Q
Quantity

6. What happen if LRP below this critical
zero-profit level?
• The short-run market supply curve will shift to
the left, and the price will rise
• The short-run market supply curve will shift to
right, and price falls

7. THE LONG-RUN FOR A COMPETTITIVE
INDUSTRY
• All cots are variable
• Firms will produce only when price is at or
above the zero- profit condition where price
equals average cost
• There are more firms
• Its leads towards the zero profit point

8. ZERO-PROFIT LONG RUN EQUILIBRIUM
• In a competitive industry populated by
identical firms with free entry and exit, the
long –run equilibrium condition is that price
equals marginal cost equals the minimum
long-run average cost for each identical firm:
P = MC = Minimum long-run AC = zero profit
price

9. CONCLUSION
• The competition among the firms leads
industries towards zero profit long run state
• Competitive firm earn normal return on their
investment
• It reduce profit toward zero
• No economical profit in perfect competitive
industry