EQUILIBRIUM OF INDUSTRY UNDER PERFECT COMPETITION

• EQUILIBRIUM OF INDUSTRY UNDER PERFECT COMPETITION
• MICRO ECONOMICS
• BY DR. SHASHI AGGARWAL
• MEANING

1. INDUSTRY MEANS GROUPS OF FIRMS PRODUCING HOMOGENEOUS PRODUCTS. INDUSTRY IS IN EQUILIBRIUM WHEN IT HAS NO TENDENCY TO CHANGE
2. ACCORDING TO HANSON,” AN INDUSTRY WILL BE IN EQUILIBRIUM WHEN THERE IS NO TENDENCY FOR THE SIZE OF THE INDUSTRY TO CHANGE THAT IS WHEN NO FIRMS WISH TO LEAVE IT AND NO NEW FIRMS ARE BEING ATTRACTED TO IT.

3.       WHEN THE FIRMS OF AN INDUSTRY EARN NORMAL PROFITS,NO NEW FIRMS WILL FEEL TEMPTED TO ENTER THAT INDUSTRY AS IT WILL HAVE NO CHARM OF EARNING NORMAL PORFITS

4.       NORMAL PROFIT MEANS MINIMUM INCOME WHICH AN ENTRPRENEUR MUST GET  FOR HIS WORK AND IT IS INCLUDED IN TOAL COST

• CONDITIONS
• CONSTANT NUMBER OF FIRMS
• EQUILIBIRUM OF FIRMS : ALL THE FIRMS OPERATING IN IT ARE IN EQUILIBRIUM AND HAVE NO TENDENCY TO EITHER INCREASE OR DECREASE
• SHORT RUN EQUILIBIRUM OF THE INDUSTRY
• THAT  PRICE AT WHICH QUANTITY DEMANDED IS EQUAL TO QUANTITY SUPPLIED. FULL EQUILIBRIUM POSITION IS POSSIBLE ONLY WHEN ALL FIRMS EARN JUST NORMAL PROFITS. BUT IN THE SHORT RUN, SOME FIRMS MAY BE EARNING SUPER NORMAL PROFIT, NORMAL PROFIT OR MAY BE LOSSES
• THE INDUSTRY IS IN EQUILIBRIUM AT THAT PRICE AT WHICH QUANTITY DEMANDED IS EQUAL TO QUANTITY SUPPLIED
• FULL EQULIBRIUM POSITION IS POSSIBLE ONLY WHEN  ALL FIRMS EARNS NORMAL PROFIT
• INDUSTRY EQUILIBRIUM     SHOR RUN   
• DIAGRAM
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• LONG RUN EQUILIBIRUM
• CONDITIONS:-

1. EACH OF THE FIRM OF THE INDUSTRY IS IN EQUILIBRIUM THAT IS MC=MR AND MC MUST CUT MR FROM BELOW
2. NO TENDENCY TO CHANGE THE NUMBER OF FIRMS THAT IS WHEN LONG RUN AVERAGE COST IS EQUAL TO  AVERAGE REVENUE ( LAC =AR)

• LONG RUN EQUILIBIRUM
• INDUSTRY 
•               
• DIFFERENCE BETWEEN THE EQUILIBRIUM OF THE FIRM AND THE INDUSTRY
• FIRM

1. UNIT OF THE INDUSTRY
2. FIRM IS IN EQUILIBRIUM WHEN IT HAS NO TENDENCY TO INCREASE OR DECREASE ITS OUTPUT
3. MC=MR AND MC MUST CUT MR FROM BELOW
4. FIRM CAN BE IN EQUILIBRIUM IN THE SHORT RUN AND IN THE LONG RUN

• INDUSTRY

1. GROUP OF SEVERAL FIRMS PRODUCING HOMOGENEOUS PRODUCTS
2. WHEN ALL FIRMS OPERATING IN IT ARE EQUILIBRIUM
3. WHEN ALL FIRMS ARE IN EQUILIBRIUM AND NO NEW FIRMS ENTER OR EXISTING FIRMS LEAVE
4. IN THE LONG RUN