00:01
So here we have a story about perfect competition.
00:03
And so the first thing i'm going to do is draw it to try to illustrate what's going on, right? in perfect competition, what has happening here is that we have a demand curve.
00:15
We have a supply curve, and this is usually referred to as the short run supply.
00:20
It is upward sloping, right? but there's also a long run supply curve, right? and the long run supply curve tells us what's going to happen in long run equilibrium.
00:31
We call it perfect competition for many reasons, one of which is that we always assume that more firms can enter the industry to compete, right? and this is defined by, again, as you might know, the minimum of the long run average cost curve.
00:46
But the basic idea is that in the long run, firms can always enter to compete.
00:51
So the market, the industry cost curve doesn't slope up, even if the individual firms cost curve slopes up because more firms can just come in.
00:59
So now, willingness to pay is going to double.
01:02
So this is going to go up by times two.
01:05
So it's going to look something like this, right? we have a massive new increase in demand.
01:10
So in the short run, we will end up here.
01:13
And in the long run, we will end up here, right? because new firms will enter and drive back costs down.
01:19
Now, what can we say here about this? right.
01:23
A, price will increase by more than the quantity.
01:29
Increase.
01:30
Well, this is almost certainly not true because here you see we've got very elastic supply, right? the whole idea of perfect competition is that firms will enter the industry.
01:45
In the short run, this might be true.
01:48
In short run, possibly true, but you see that in the long run, it's definitely not.
01:58
In the long run, the entry of more firms into the industry will keep price down...