LONG RUN EQUILIBRIUM OF THE PERFECTLY COMPETITIVE FIRM UNDER DIFFERENTIAL COST CONDITIONS
IN THIS TUTORIAL VIDEO LONG RUN EQUILIBRIUM OF THE PERFECTLY COMPETITIVE FIRM UNDER DIFFERENTIAL COST CONDITIONS IS EXPLAINED. THE CONCEPT OF MARGINAL FIRM AND INTRA-MARGINAL FIRM IS VERY IMPORTANT HERE. MARGINAL FIRM IS THAT FIRM WHICH WOULD LEAVE THE INDUSTRY FIRM SHOULD THE PRICE FALLS. THE MARGINAL FIRM IS THE HIGHEST COST FIRM IN THE INDUSTRY. THE MARGINAL FIRM EARNS ONLY NORMAL PROFIT WHILE THE INTRA MARGINAL FIRMS ENJOY SUPER NORMAL PROFIT. THE EQUILIBRIUM IS REACHED WHEN THE PRICE IS EQUAL TO THE MC OF ALL FIRMS AND EQUAL TO THE MINIMUM AC OF THE MARGINAL FIRM. THE MARGINAL FIRM PRODUCES WITH OPTIMUM PLANT SIZE AS ITS AR CURVE IS TANGENT EO THE MINIMUM POINT OF AC CURVE. THE INTRA-MARGINAL FIRMS OPERATE AT MORE THAN OPTIMUM PLANT SIZE.