Figure 8.18 Long-Run Adjustments to a Reduction in Costs in a Perfectly Competitive Industry

(a) A decrease in industrywide marginal costs leads to an increase in the supply of beef from S₁ to S₂. Industry quantity increases from Q₁ to Q₂, and the market price decreases from P₁ to P₂ in the long run.
(b) The decrease in industrywide marginal costs shifts the individual cattle rancher’s long-run marginal cost from LMC₁ to LMC₂ and long-run average total cost from LATC₁ to LATC₂. In the long run, the rancher increases output from Q*₁ to Q*₂.
(c) An increase in the supply of beef leads to a long-run decrease in price from P₁ to P₂, and quantity of beef supplied increases from Q₁ to Q₂.