6. KEY QUESTION Using diagrams for both the industry and a representative firm, illustrate competitive long-run equilibrium.

Assuming constant costs, employ these diagrams to show how

(a) an increase and

(b) a decrease in market demand will upset that long-run equilibrium. Trace graphically and describe in words the adjustment processes by which long-run equilibrium is restored.

Now rework your analysis for increasing-cost and decreasing-cost industries and compare the three long-run supply curves.