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Unformatted text preview: 1 and the price rises as P 1 . With a rise in price the same firms start earning Super Normal profits. Therefore outside firms are attracted and start entering the industry. In the long run industry supply curve is shifted downwards as S 1 S 1 . A new point of equilibrium e 2 is established where D 2 D 2 and S 2 S 1 have intersected. In the new equilibrium position a larger quantity Q 1 is exchanged at the same old price P. The firms again earn only normal profits. The long run equilibrium price will depend upon the cost structures of the new and old firms. The price may take any one of the three forms in the long run. Normal possibility is that either the price will remain constant or it will be slightly higher than that in the short run....
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- Fall '10