If the industry output increases in prices of the inputs, then the TC increases with respect to Y: TC Y' (y) > TC Y (y). TC Y (y) illustrates that the total costs of producing y units in a particular situation when the industry’s output is Y. This is the reason, it is crucial to index the cost functions of the firms based on the industry output. This scenario is common, especially for an input for which the industry is looking to use a significant fraction of the entire amount of that particular input available in the economy. This also leads to changes in price input. Long-run equilibrium of the firm under perfect competition may contract or expand based on the changes in the industry’s demands. It is possible that a firm’s cost functions may get affected due to the changes in industry output.
To define the long-run equilibrium of firm and industry under perfect competition, we need to take a look more precisely. They sell specific products which are not obtainable in other market bases. Industry, on the other hand, is a group of firms that produce homogenous products in the market. To make it simpler, it is a unit that employs aspects of production for producing commodities sold to other firms, government, and households. It can also buy and hire various resources and sale-related goods and services. It is done eyeing customer satisfaction and maximizing the profits. A firm is an organization that produces and supplies different types of goods in the respect of public demands. It is crucial to determine the meaning of ‘firm and industry’ before analyzing the graph of a purely competitive firm in the long-run equilibrium.
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