00:01
So here we're talking about perfect competition.
00:02
And let's remember what that is, right? long run equilibrium in perfect competition is defined by the following equivalencies, right? it's got to be price is equal to marginal cost, but that's also true for short run.
00:17
And it's also got to be equal to the minimum of the average total cost curve.
00:23
The idea being if price is not equal to the minimum average total cost, then either profits, are being made and firms will enter or losses are being made and firms will leave.
00:33
But firms entering or leaving is not long run equilibrium.
00:37
So our long run equilibrium situation would look something like this.
00:42
If i put a cost structure, we have a price, right? we have the average total cost curve and then we have marginal cost, right? and marginal cost always, always always goes through the minimum of average total cost, looking something like this.
01:04
And so we are all at this point, right? so this would be our original long -term equilibrium.
01:11
Now we are thinking about wages are going up, and wages are costs, right? our costs, and in particular, they are variable costs, right? so wages will be part of the marginal cost.
01:26
They're not fixed costs, in which case marginal cost would not change, but they are variable costs, right? so they're part of total costs.
01:34
They are part of the marginal cost, right? so we could imagine a new average total cost function that looks something like this, right? that would be my new average total cost, and my new marginal cost curve would look something like this, right? i mean, i didn't put that right through the minimum.
01:56
Let's see if i can do slightly better.
01:59
There we go...