<p>Theoretically, if all firms are identical and have the same cost schedule, then the supply curve for the market should be perfectly elastic, as you stated. The side-by-side market and firm graphs would appear as follows:</p>

<p><a href="https://i.sstatic.net/8TLXF.jpg" rel="nofollow noreferrer"><img src="https://i.sstatic.net/8TLXF.jpg" alt="enter image description here"></a></p>

<p>This is an odd situation. Typically, when there exists a surplus of a good, firms competitively lower their prices until enough firms go out of business for the surplus to no longer exist; and when there exists a shortage, firms enter the industry until the supply increases enough for the shortage to vanish. </p>

<p>However, in this case, since firms are not distinguished by the price that they can afford to charge, the natural tendency towards equilibrium cannot occur this way. Instead, when there is a surplus, firms cannot compete by price lowering and will either survive or perish based on the random purchase choices of  buyers (if prices are the same everywhere, consumers will probably choose where they buy their goods based on other factors, like geographic proximity, aesthetic preferences, etc, but “rational” buyers in the simplified model will be indifferent). For our purposes, which firms survive and which close down will be essentially random - whichever firms happen not to sell enough of their product for whatever reason will close.</p>

<p>During a shortage, it gets even weirder. Whether or not firms enter the industry depends on the location of the ATC curve (which is why I did not draw it in the above graphs). If <span class="math-container">$ATC &lt; P_F$</span> at <span class="math-container">$Q_F$</span>, firms would enter since profits are possible and people will buy the good they produce. If <span class="math-container">$ATC = P_F$</span> at <span class="math-container">$Q_F$</span>, there is no telling whether firms will enter, since they will all be indifferent. </p>

<p>And if <span class="math-container">$ATC &gt; P_F$</span> at <span class="math-container">$Q_F$</span>, whether there is a surplus or shortage, firms will drop dead like flies until not a one is left. If the good being produced is of any real import, the government would probably offer subsidies to incentivise the production of the good.</p>

<p>So, <strong>to answer your question</strong> - it would make sense for you (a firm) to enter if <span class="math-container">$Q&lt;Q_M$</span> and <span class="math-container">$ATC &lt; P_F$</span> at <span class="math-container">$Q_F$</span>. You could also enter when <span class="math-container">$Q\ge Q_M$</span>, but then your success or failure would be left up to chance or other factors as consumers decide whether to buy your product or your competitor’s identically-priced product.</p>

CC BY-SA 4.0
2019-04-12T21:22:53.473Z
2019-04-12T21:22:53.473Z
Franklin Pezzuti Dyer
<p>If I have a market in which I have constant MC, no fixed costs, and perfect competition- when would it make sense for a new firm to enter the market(granted they have the same technology)? Would I need more information about the market?</p>

<p>also would the cost curves for an individual firm be 1 line since <span class="math-container">$AC=MC=AVC$</span> and <span class="math-container">$MR=MC$</span> and <span class="math-container">$P=MC$</span> under perfect competition, leading to <span class="math-container">$P=MC=AVC=AC=MR$</span></p>

<p>and for the market</p>

<p>Supply would be perfectly elastic and demand being a downward sloping curve.</p>

CC BY-SA 4.0
2019-04-12T17:54:54.947Z
Can you provide more information, like an attempt at a solution?
user43395
CC BY-SA 4.0
2019-04-12T19:25:47.730Z
You should provide an attempt of solution
Pedro Cavalcante
<microeconomics><supply-and-demand>
Perfectly competitive constant MC Questions
George
# Perfectly competitive constant MC Questions

(Asked by: username_0 on 2019-04-12)

If I have a market in which I have constant MC, no fixed costs, and perfect competition- when would it make sense for a new firm to enter the market(granted they have the same technology)? Would I need more information about the market?

also would the cost curves for an individual firm be 1 line since $AC=MC=AVC$ and $MR=MC$ and $P=MC$ under perfect competition, leading to $P=MC=AVC=AC=MR$

and for the market

Supply would be perfectly elastic and demand being a downward sloping curve.

**Tags:** microeconomics, supply-and-demand

> **Comments:**
> **username_1**: Can you provide more information, like an attempt at a solution?  
> **username_2**: You should provide an attempt of solution  

---

## 1 answers

### Answer by username_3 on 2019-04-12. Score: 1 | Accepted answer

Theoretically, if all firms are identical and have the same cost schedule, then the supply curve for the market should be perfectly elastic, as you stated. The side-by-side market and firm graphs would appear as follows:

[![enter image description here](https://i.sstatic.net/8TLXF.jpg)](https://i.sstatic.net/8TLXF.jpg)

This is an odd situation. Typically, when there exists a surplus of a good, firms competitively lower their prices until enough firms go out of business for the surplus to no longer exist; and when there exists a shortage, firms enter the industry until the supply increases enough for the shortage to vanish.

However, in this case, since firms are not distinguished by the price that they can afford to charge, the natural tendency towards equilibrium cannot occur this way. Instead, when there is a surplus, firms cannot compete by price lowering and will either survive or perish based on the random purchase choices of buyers (if prices are the same everywhere, consumers will probably choose where they buy their goods based on other factors, like geographic proximity, aesthetic preferences, etc, but “rational” buyers in the simplified model will be indifferent). For our purposes, which firms survive and which close down will be essentially random - whichever firms happen not to sell enough of their product for whatever reason will close.

During a shortage, it gets even weirder. Whether or not firms enter the industry depends on the location of the ATC curve (which is why I did not draw it in the above graphs). If $ATC < P\_F$ at $Q\_F$, firms would enter since profits are possible and people will buy the good they produce. If $ATC = P\_F$ at $Q\_F$, there is no telling whether firms will enter, since they will all be indifferent.

And if $ATC > P\_F$ at $Q\_F$, whether there is a surplus or shortage, firms will drop dead like flies until not a one is left. If the good being produced is of any real import, the government would probably offer subsidies to incentivise the production of the good.

So, **to answer your question** - it would make sense for you (a firm) to enter if $Q<Q\_M$ and $ATC < P\_F$ at $Q\_F$. You could also enter when $Q\ge Q\_M$, but then your success or failure would be left up to chance or other factors as consumers decide whether to buy your product or your competitor’s identically-priced product.


---

