Short-Run vs Long-Run Supply Response

Number of Firms 70

More firms → supply shifts right → lower price

Demand Intercept ($) $30

Higher intercept → stronger demand → higher price

Market Price

$0.00

Firm Output

0 units

Market Output

Economic Profit

Adjust the sliders to explore market dynamics.

Cost-Based Decision Rules
Threshold	Price	Meaning
Shutdown	$2.00	P < AVC_min: cease production
Break-Even	$12.00	P = ATC_min: zero profit

Market Equilibrium Details
Variable	Value	Notes
Market Price (P*)	—	Equilibrium price at intersection of supply & demand
Firm Output (q*)	—	Each firm produces where P = MC
Market Output (Q*)	—	Total = (number of firms) × (firm output)
Marginal Cost (MC)	—	Should equal price at optimum
Average Total Cost (ATC)	—	P vs ATC determines profit/loss
Average Variable Cost (AVC)	—	P vs AVC determines shutdown decision
Economic Profit per Firm	—	(P − ATC) × q*
Long-Run Expectation	—	Entry/exit pressure in long run

Short-Run Supply Curve Each firm's MC curve above AVC. Adding up all firms gives market supply.

Entry & Exit Rule Profit > 0 → firms enter → supply shifts right → price falls. Loss < 0 → firms exit → supply shifts left → price rises.

Long-Run Equilibrium Economic profit = 0. Price equals minimum ATC. No incentive to enter or exit.

Shutdown Rule A firm shuts down when P < min AVC (it cannot cover variable costs). Fixed costs are sunk in the short run.

Supply and demand graphs