Short-Run Equilibrium: Interactive Graph + 4 Practice Questions

In the short run, the number of firms in the market is fixed — there isn’t enough time for new firms to enter or existing firms to exit. The market reaches equilibrium where market supply equals market demand. At this equilibrium price, each firm produces where $P = M C$ . Depending on where the price lands relative to $A T C$ , individual firms may earn positive profit, zero profit, or take losses.

Tip

Short-Run vs. Long-Run

In the short run, the number of firms is fixed. Firms can earn profits or losses. In the long run, firms enter and exit, driving profits toward zero. The short run is a snapshot; the long run is the destination.

A short-run equilibrium with positive profits is a signal: “This market is profitable!” This attracts new entrants. A short-run equilibrium with losses sends the opposite signal, causing firms to exit. These entry/exit dynamics are the engine that drives the market toward the long-run equilibrium.

Short-run equilibrium: quantity demanded equals the sum of each firm’s supply at the equilibrium price

Worked Example

A competitive market has 100 identical firms, each with supply curve $q = 2 P - 10$ (for $P \geq 5$ ). Market demand is $Q_{d} = 500 - 10 P$ . Find the short-run equilibrium price and per-firm output.

Interactive — Number of firms → market price → firm profit

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Two side-by-side panels: the market clears at P* on the left, and a single firm reads its q* and profit or loss off MC and ATC on the right. Step through three industry sizes (N) to see profits shrink as more firms enter.

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In a short-run competitive equilibrium, can firms earn positive economic profit?

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Short-run equilibrium concepts:

In the short run, a competitive market reaches equilibrium when:

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