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Difference between Firm and Industry’s Equilibrium

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Some of the main difference between firm and industry’s equilibrium are as follows:

1. Period of Equilibrium:

The firm may be in short-run equilibrium but the equilibrium of the industry in the short-period is a matter of accident.

In the short-run, the firm may be undergoing losses or enjoying extra profits and yet be in equilibrium. This means that the industry will not be in equilibrium as its output will tend to change due to the entry or exit of firms.

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In the long run every firm, in equilibrium, enjoys only normal profits. Therefore, the industry also is in full equilibrium since there is no entry or exit of firms and output of the industry is also stable.

2. Difference between Equilibrium of the Industry and Firm:

The industry equilibrium yields both equilibrium output as well as equilibrium price. Both in the short run as well as long run, the point where the industry supply curve and demand curve meet signifies both equilibrium price and output of the industry.

However, equilibrium of the firm indicates equilibrium output only. It is well-known that under perfect competition, industry is the price-maker while the firm is the price-taker. The firm has no control over price; it has only to decide how much to produce at the given market price determined by the industry’s demand and supply.

3. Conditions of Equilibrium:

The firm is in equilibrium when MC=MR and MC is rising. It holds true both in the short and long period.

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The industry is in equilibrium when two conditions are satisfied:

(1) Every firm is in equilibrium and

(2) Every firm enjoys only normal profit.

For the equilibrium of the firm, the condition is that MC=MR. It is, however, possible that when MC=MR, the firms may either be enjoying extra-profits or undergoing losses. This will lead to the entry or exit of firms and the industry’s output will not be stable. For the equilibrium of the industry, it is, therefore, necessary that every firm in the industry enjoys normal profit and there is no entry or exit.

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