The derivation of long-run supply curve of a competitive firm is similar to the derivation of its short-run supply curve, as shown in Fig 18.8 by dark segments. The firm’s long-run optimal output corresponding to different price levels is determined by the equality of price (AR = MR) and the long run marginal cost (LMC).
Zero output is produced at prices less than the long-run average cost (LAC).
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In Fig. 10.8, OP is the minimum acceptable price in the long run, since no firm can suffer losses in the long run. At this price, the competitive firm attains equilibrium at point E0 and supplies OQ0 output. At price OP1, equilibrium is attained at point E1 with OQ1 as the output produced.
Further, at OP2 price, the output supplied is OQ2, while the output supplied is OQ3 at OP3 price and so on. All equilibrium points, such as E0, E1, E2 and E3 lie on the firm’s LMC curve. These points also show the supply of the competitive firm in the long-run at various prices.
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Therefore, the portion of LMC curve of the competitive firm above its LAC curve is its long run supply curve. Long-run supply curve of a perfectly competitive firm is, thus, derived by joining together the points of intersection of the LMC curve with the successive demand curves of the firm, as the market price of the product under consideration keeps rising above its average cost.
Fig. 10.8: Long-Run Supply Curve of a Competitive Firm