.
Analysis of perfect competition.
w
In the long run, profit attracts entry.
$/q
q/t
P
1
AC
d
1
MC
q*
w
Addition of new firms shifts out market supply curve.
w
Entry continues until price is bid down to minimum point
of individual firm’s AC curve.
$/q
P
1
q/t
D
S
1
S
2
$/q
q/t
P
2
AC
d
2
MC
q*
Q
1
Q
2
P
2
w
Price of output now exactly equal to the opportunity cost of
resouces used in production.
