all right now let's dig a little bit more into analyzing perfectly competitive markets and in particular we're going to focus on the long run and remember the long run is the time span where firms can enter and exit the market another way to think about it is in the long run fixed costs actually become variable you can shutter factories or you can build factories in the long run now in previous videos we talked about that in the long run in a perfectly competitive market the firms that operate in that perfectly competitive market are going to be operating at zero economic profit and you see that example right over here as we've talked about in many many videos in a perfectly competitive market the firms are price takers that price is set by that equilibrium point between the supply and demand curves and the firms just take that and so their marginal revenue curve is would just be a horizontal line that you see right over there and zero economic profit happens when you produce a a quantity where your average total cost is the same as your marginal revenue for each unit the amount that you get which is that marginal unit that's also how much it costs you to produce it now remember when we're talking about economic profit that includes your opportunity cost so that doesn't mean that these firms are operating at zero accounting profit they could still be making money but if you were to factoring their opportunity costs that's when you get things to zero now what I want to think about what happens in the short and long run if something say happens to market demand let's say that this is the market for apples the fruit apples so this is the market for apples we're talking about this is the market as a whole this is a firm that produces apples it could be a farm of some kind and let's say that a new study comes out that apples actually are super good for your health and they can be used as a performance enhancer for sports and and all sorts of positive results well what is likely to happen in the short run and this is a little bit review in terms of our supply and demand curves and also what would happen to firm A's economic profits pause this video and think about that well in the short run your demand curve would shift to the right and so because at a given price people are willing to demand more apples because it has all these new and exciting benefits and so the demand curve might shift someplace like that so that is d e Prime and if the demand curve shifts like that now we have a new equilibrium price in the market our new equilibrium price in the market is right over here we also have a new equilibrium quantity so our quantity has shifted from there to now there so new equilibrium quantity and we have a new equilibrium price let's just call this P Prime and at that new equilibrium price at that new equilibrium price well now we have a higher margin Revenue curve for Firma a and now firm a it would be rational for them to produce remember it's rational for them to produce up until the marginal revenue is equal to marginal cost because each of those incremental units up to that point they're going to be making money on those incremental units and so now it's rational for them to produce at this quantity let me call that let me call that Q Prime and at this level now all of a sudden fir is making economic profit because at this quantity that's Revenue per unit this is average total cost per unit so they're making this height per unit and then you multiply it times your total number of units which is the base of this rectangle and so this area would represent this positive economic profit now you might be saying wait hold on a second I thought you said in the long run firms don't make economic profit in a perfectly competitive market and that is true at least based on the models that we are constructing because what happens when you have this positive economic profit well other firms will enter this Market remember we're talking about a perfectly competitive market there are no barriers to entry and everyone is fairly non-differentiated and they have similar cost structures and so what you could imagine is in the long run folks will enter the market and then the supply curve will also shift to the right and assuming that that doesn't change the cost structure for the individual firms and actually let me show someone entering into this market so now firm B is entering this market and when firm B enters the market it has the same cost structure as firm a and it didn't shift either of their first either of their cost structures so this is known as a constant cost perfectly competitive market where the entry the entering or the exiting of firms does not affect the cost structures of the firms that are entering or that are in the market and so in this situation these graphs look the same but now we have more firms entering the market the supply curve will shift to the right and it's going to keep shifting to the right until these firms that all have identical cost structures are no longer making economic profit again they wouldn't it wouldn't shift further to the right because no one's going to enter if they're making economic loss it'll keep shifting until no one is making that economic profit and so you see what happened in this constant cost perfectly competitive market that now we are back to this equilibrium point we we are at a higher quantity because people like all the benefits of these of these apples but we're at the price we were before which is the same marginal revenue curve that we were before for the various players for the various players in this market and so when you see something like this in a constant cost perfectly competitive market you can actually create a long run supply curve you could view this S and S Prime is a short run supply curve the long run supply curve on the other hand for a perfectly competitive Market in which the cost structure of the participating firms do not depend on the number of firms that are in or out of the market then your long run supply curve and what we could call a constant cost perfectly competitive market is going to be a horizontal line like this so I will leave you there in other videos we'll think about well what happens if the cost structure changes for these firms depending on how many firms are in or out of the market and that'll be based based on how do the cost of the inputs into their production change as you have people entering or exiting that market