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Industry- Definition and Equilibrium

Industry
The group of firms producing homogenous products is called Industry. Homogeneous products are those products in which it is not possible to make any distinction between the units of the commodity being sold by different sellers. Such firms are found only under perfect competition. Perfect competition is that situation of the market in which there are large number of buyers and sellers of homogeneous product. Under perfect competition, price of the commodity is determined by the industry. In perfect competition market firm is a price-taker and not a price-maker.

Equilibrium of Industry
An industry is in equilibrium when it has no tendency to change its size. There are two conditions of an industry’s equilibrium:

• Constant Number of Firms: An industry will be in equilibrium when the number of its firms remains constant. In this situation, no new firm will enter and no old firm will leave the industry.

• Equilibrium of Firms: Another condition of an Industry’s equilibrium is that all firms operating in it are in equilibrium and have no tendency either to increase or to decrease their output. Conditions of equilibrium of firm are:
(i) MC=MR
(ii) MC curve cuts MR curve from below

At point E both the conditions are satisfied

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