Essentials of Economics 2nd Edition by Campbell McConnell, Randy Grant, Stanley Brue

Exercise 6

Using diagrams for both the industry and a representative firm, illustrate competitive long-run equilibrium. Assuming constant costs, employ these diagrams to show how (a) an increase and (b) a decrease in market demand will upset that long-run equilibrium. Trace graphically and describe verbally the adjustment processes by which long-run equilibrium is restored. Now rework your analysis for increasing- and decreasing- cost industries, and compare the three long-run supply curves.