and industry are in long-run equilibrium. If there were an excessive entry of
new firms this would shift the industry supply curve even further to the right,
the price would fall below P2, and firms would not even be able to make normal
profit. Some firms would therefore leave the industry until the price rose back
to P2.
It is helpful to remember in this graphical analysis that essentially a twostep
procedure is involved:
1 Determining the profit-maximizing output. This means examining P and MC.
2 Determining the size of the profit. This means examining P and ATC.
In this long-run equilibrium the following conditions hold:
P ¼ SMC ¼ LMC ¼ SAC ¼ LAC ¼ MR ¼ AR