Assume that no matter how many firms operate in the industry, every firm is identical and faces the same marginal cost (MC), average total cost (ATC), and average variable cost (AVC) curves plotted in the following graph.
The model above can be generalized to more complex lag structures, but the idea remains the same lagged dependent variables perpetuate an effect into infinite future. Short-run supply and long-run equilibrium Consider the competitive market for rhodium. That is what is called the long-term effect. that is, p 2q, or q(p) p/2 is the short-run supply curve. Suppose you have a model $$y_t=\alpha+\beta y_\gamma x_t$ (where you use a formula for the infinite sum of a decaying geometric series, see Wikipedia). Determine the long-run equilibrium price, quantity per firm, market quantity and number of.