Dynamic changes and the Industry equilibrium

Dynamic changes and industry equilibrium

Perfect competition model can be examined in three different situations:
 A shift in the market demand
 A shift in the costs following changes in factor prices
 Imposition of a tax by the government

When market demand shifts, the impact on an industry depends on whether it's a constant,
increasing, or decreasing-cost industry, with the long-run supply curve shifting differently in
each case.
Constant-Cost Industry:
 Definition: In a constant-cost industry, the cost of production for firms remains the same as
demand increases.
 Long-Run Supply Curve: The long-run supply curve is horizontal (perfectly elastic).
 Impact of Demand Shift: An increase in demand leads to a higher equilibrium quantity and
price, but the price returns to its original level in the long run, as the industry can expand
without increasing costs.
INDUSTRY IN THE LONG -RUN SUPPLY :Type#1 Constant-cost industry:Long-run
supply curve:
The long-run supply curve in a constant-cost industry is a horizontal line SL as in part
(b), at a price which is equal to the long-run minimum AC of
Production.