Explanation

Reset

The perfect competition graph illustrates the market model in which firms “take the price” of the market for a good.

In this space, an explanation of the desired shift will appear.

Please choose change first.

There is no dead weight loss because there is an efficient outcome.

The equilibrium price in the market will increase. Firms under the perfect competition model operate at the price set by the market, so the marginal revenue/demand/average revenue/price curve will increase as well. Since the firm was originally breaking even, the increased demand will bring economic profit in the short-run.

Adjust to Long Run: Since the firm is incurring short-run economic profit, other firms will enter the market in an attempt to also make profit. The supply curve in the market will increase, and the equilibrium price in the market will decrease. Eventually, the marginal revenue/demand/average revenue/price curve will decrease until it is tangent to the minimum point of average cost.

The equilibrium price in the market will decrease. Firms under the perfect competition model run at the price set by the market, so the marginal revenue/demand/average revenue/price curve will decrease as well. Since the firm was originally breaking even, the decreased demand will bring economic loss in the short-run.

Adjust to Long Run: Since the firm is incurring short-run economic losses, other firms will leave the market as it is no longer desirable. The supply curve in the market will decrease, and the equilibrium price in the market will increase. Eventually, the marginal revenue/demand/average revenue/price curve will increase until it is tangent to the minimum point of average cost

Both marginal cost and average cost curves will increase because it now costs more to make the good. Since the firm was originally breaking even, the increased costs will bring economic loss in the short-run.

Adjust to Long Run: Since the firm is incurring short-run economic losses, other firms will leave the market as it is no longer desirable. The supply curve in the market will decrease, and the equilibrium price in the market will increase. Eventually, the marginal revenue/demand/average revenue/price curve will increase until it is tangent to the minimum point of the new average cost curve.

Both marginal cost and average cost curves will decrease because it now costs less to make the good. Since the firm was originally breaking even, the decreased costs will bring economic profit in the short-run.

Adjust to Long Run: Since the firm is incurring short-run economic profit, other firms will enter the market in an attempt to also make profit. The supply curve in the market will increase, and the equilibrium price in the market will decrease. Eventually, the marginal revenue/demand/average revenue/price curve will decrease until it is tangent to the minimum point of average cost.

Both marginal cost and average cost curves will increase because it now costs more to make the good. Since the firm was originally breaking even, the increased costs will bring economic loss in the short-run.

Adjust to Long Run: Since the firm is incurring short-run economic losses, other firms will leave the market as it is no longer desirable. The supply curve in the market will decrease, and the equilibrium price in the market will increase. Eventually, the marginal revenue/demand/average revenue/price curve will increase until it is tangent to the minimum point of the new average cost curve.

Both marginal cost and average cost curves will decrease because it now costs less to make the good. Since the firm was originally breaking even, the decreased costs will bring economic profit in the short-run.

Adjust to Long Run: Since the firm is incurring short-run economic profit, other firms will enter the market in an attempt to also make profit. The supply curve in the market will increase, and the equilibrium price in the market will decrease. Eventually, the marginal revenue/demand/average revenue/price curve will decrease until it is tangent to the minimum point of average cost.

Both marginal cost and average cost curves will decrease because it now costs less to make the good. Since the firm was originally breaking even, the decreased costs will bring economic profit in the short-run.

Adjust to Long Run: Since the firm is incurring short-run economic profit, other firms will enter the market in an attempt to also make profit. The supply curve in the market will increase, and the equilibrium price in the market will decrease. Eventually, the marginal revenue/demand/average revenue/price curve will decrease until it is tangent to the minimum point of average cost.

Both marginal cost and average cost curves will increase because it now costs more to make the good. Since the firm was originally breaking even, the increased costs will bring economic loss in the short-run.

Adjust to Long Run: Since the firm is incurring short-run economic losses, other firms will leave the market as it is no longer desirable. The supply curve in the market will decrease, and the equilibrium price in the market will increase. Eventually, the marginal revenue/demand/average revenue/price curve will increase until it is tangent to the minimum point of the new average cost curve.