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Long-run
Unit 7 - Lesson 2
Learning outcomes:
Graph and explain Perfect Competition in
the long-run when there are changes in
Demand and Supply.
Explain that Perfectly Competitive firms are
Allocatively & Productively efficient in the
long-run.
Evaluating Perfect Competition.
Short-run to Long-run
Point 1 in Graph b represent
the price in the market.
Point 1 gives the firm (graph
a) supernormal profit.
Due to the free entry/exit into
the marketplace, other firms
will enter the industry.
Increase in number of firms Determinant of Supply Supply increases (S1 - S2) Price decreases (Point 2)
Normal Profit
Economic Loss
Normal Profit
Allocative Efficiency
Producing the combination of goods & services that
consumers mostly prefer.
In Perfect Competition, allocative efficiency occurs:
P = MC
Perfectly competitive firm are
ALWAYS Allocatively Efficient in the long-run.
P = MC in both the short & long run.