The long-term competitive equilibrium and the supply of goods. The paradox of profits

Economic profit in the long term will attract new firms, and the losses will force companies to leave the industry. As a result, the market price of the product set at the minimum average cost (LAC) typical firm. All branches of the company will receive a zero economic profit, and each of them would choose the volume of production, in which the following condition: P = LAC = LMC.

Graphically, it looks like this:

The point ε - a point long-term competitive equilibrium.

Equity prices and the minimum average cost shows that the company uses the most effective of the known technologies, designate lowest bidder, and produces the largest amount of production. The equality of P and the marginal cost indicates that resources are allocated in accordance with the preferences of consumers.

Long-term supply curve branches can take different forms depending on the dynamics of LAC.

If the company has branches in equilibrium, their LAC does not change depending on the number of incoming and outgoing companies from the industry, the proposal would be completely flexible and the schedule offers - a horizontal line (S1).

In the case of expansion of the industry in the economies of scale (increasing Q while reducing the AU and P) curve S will fall (S2).

If with increasing Q in the industry are growing and the AU and P, then the supply curve in the LR takes the classic "bottom-up" type (S3).

Different versions of the industry supply curves in LR match some portion of the curve LAC.

The American Journal of Economics and Sociology

(AJES; American Journal of Economics and Sociology) - Journal, founded in 1941 to continue the discussion, open an economist and social philosopher Henry George. Chief Editor is Prof. L. Moss.

Each year, as an annex to the magazine publishes a monograph series "Studies of social reform and economic rights." In addition, each year one issue of the journal is thematic (dedicated to a problem or an economist).

Frequency: 5 issues per year.