Constant cost industry with large number of identical firms

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Reference no: EM131102743

Consider a perfectly competitive, constant cost industry with a large number of identical firms.

Each firm’s long-run average cost curve reaches a minimum of $5 at 100 units of output.

The current market price is $10.

a. Why is this industry not in long run equilibrium?

b. Explain in words and graphs what changes will take place to bring the industry to an equilibrium point. What condition characterizes this equilibrium?

c. Draw the LR industry supply curve.

d. If this were an increasing cost industry, what would the long run industry supply curve look like? Explain why.

Reference no: EM131102743

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