Question

State and illustrate the supply curve of an industry in the long-run period.

Answer 1

An industry is in equilibrium in the long run when the following three conditions are satisfied:

1. Industry's demand = Industry's supply.
2. All firms of an industry are in equilibrium.
3. All firms are in equilibrium just to get normal profits.

The long-run equilibrium of the industry is shown in the figure.

As shown in Figure, an industry reaches long-run equilibrium when the long-run supply (LRS) equals the long-run demand (LRD). At this point, the industry sets the market price at OP and produces OQ units of output. Individual firms within the industry will accept this price, reaching their own equilibrium at point E₁, where they earn only normal profits.

For the industry to remain in long-run equilibrium, each firm must also operate at a level where it neither makes a profit nor incurs a loss, ensuring no economic profit in the long run.