Question

What is the condition of short-run equilibrium of the industry under perfect competition?

Answer 1

The condition of short-run equilibrium of the industry under perfect competition is that the industry is in equilibrium at the point where the market demand curve and the industry supply curve intersect.

This occurs when:

Total market demand = Total market supply

At this equilibrium point: 

• The equilibrium price (OP) and equilibrium quantity (OQ) are determined.
• If the price is above OP, there is excess supply, which leads to a fall in price.
• If the price is below OP, there is excess demand, which leads to a rise in price.
• At equilibrium, there is neither excess supply nor excess demand, and the price has no tendency to change.

Thus, when market demand equals market supply at a price where the demand and supply curves intersect, the industry achieves the short-run equilibrium.