00:01
So here i've drawn a market demand curve.
00:02
And before i draw supply curves, let's just remember the difference between short run and long run equilibrium, right? and short run price equals marginal cost.
00:09
But it's only in the long run is price equal to marginal cost is also equal to the minimum of the long run average cost, right? long run average cost means that where the business model, the quantity, the capital, the labor structure that minimizes the costs, lower, it gives you the lowest possible cost of production.
00:27
In the short run, you can't always achieve that, right? things like capital are fixed in the short run.
00:32
So demand shocks can only let you get price equals marginal cost.
00:37
They may cause problems, right? if there's a sudden demand shock, firms can't build more capital.
00:43
The best they can do is force their workers to work overtime, and that drives up costs in the short run.
00:50
But in the long run, other firms will see the profits and enter.
00:53
Right.
00:54
So the short run supply curve is upward sloping, right? reflecting the fact that capital is fixed in the short run.
01:02
And if you need to get more product, you've got to work overtime, pay higher wages, etc, etc.
01:08
But in the long run, right, the supply curve is flat.
01:13
Because in the long run, an infinity amount of firms can enter producing the optimal quantity at the same minimum lrac cost, right? which is this blue.
01:24
Line.
01:25
So here we go.
01:27
The demand is going to increase.
01:30
So the demand is going up.
01:35
Demand is going up.
01:37
And that gives us a short run equilibrium.
01:39
So the price is going to go up in the short run and that will create profits.
01:45
Right...