Production- Perfeet Cornpetition Short Run Industry Supply Industry supply in the short run is given by simply adding up the supply curves for each individual firm. S(p)=∑S( Geometrically, just like with demand, the supply functions are summed horizontally. The intersection with market demand gives p. Returning to the firm with this yields short run equilibrium. letion-Perfeer Competition Perfect Competition in the Short Run In the short run, perfectly competitive firms can make profits or losses. P P MC AC p In the first graph, the firm makes a profit, z. Average cost lies below average revenue(price) In the second graph, the firm makes a loss. Average cost lies above average revenue(price) Even when making a loss a firm may wish to produce positive amounts - as long as revenue exceeds variable costsProduction — Perfect Competition 7 Short Run Industry Supply • Industry supply in the short run is given by simply adding up the supply curves for each individual firm. S(p) = Xn i=1 Si(p) ................................................................................................................................................................................................................................................................................ . . ........................................................................................................................................... . 0 p y S1 S2 S1 + S2 ............. ............. • Geometrically, just like with demand, the supply functions are summed horizontally. • The intersection with market demand gives p ∗ . Returning to the firm with this yields short run equilibrium. Production — Perfect Competition 8 Perfect Competition in the Short Run • In the short run, perfectly competitive firms can make profits or losses. .................. . ...... .................. . ...... ............................ ............................ ................................................................................................................................................................................................................................................................................ .................................................................................................................................................................................................................................................................................. .................................................................................................................................................................................................................................................... ........................................................................................................................................................... ..................................................................................................................................................................................................................................................... ............................................................................................... . . . . . . . . 0 p y 0 y MC AC MC AC p π > 0 π < 0 p ∗ p ∗ y ∗ y ∗ • In the first graph, the firm makes a profit, π. Average cost lies below average revenue (price). • In the second graph, the firm makes a loss. Average cost lies above average revenue (price). • Even when making a loss a firm may wish to produce positive amounts — as long as revenue exceeds variable costs