Two-panel diagram showing industry market equilibrium and individual firm behaviour side by side. Explore how market price feeds directly into the firm, and how long-run entry and exit drives profit to zero. Built for AQA, Edexcel and OCR A Level Economics.
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D2 shows the effect of a demand shift on P* and the firm's AR=MR line
S2 shows how a supply shock changes P* for all firms
P* feeds directly into the firm as its horizontal AR=MR line.
Market P* = £60.0. Firm produces q* = 61.8 earning supernormal profit of £1293. Long-run: new firms enter until P = min AC ≈ £31.0.
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