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Unformatted text preview: Econ 201 - Principles of Microeconomics 1 Firm Supply in Competitive Markets It is by invisible hands that we are bent and tortured worst. ~ Nietzsche Our discussion: 1. Perfect competition 2. Fixed costs 3. The firms supply decision 4. Long-run perfect competition 1. Perfect competition A supply curve is a schedule of production levels for given, hypothetical, prices. The prices that a perfectly competitive firm faces are determined in the market. Assuming that an individual firms decisions do not influence these market prices suggests that such firms are price takers. Econ 201 - Principles of Microeconomics 2 A perfectly competitive market is a market in which each individual firm accepts prices as given (i.e. all firms are price takers). Specifically, we assume: There are so many firms that a single firm has no influence on the market price All firms produce a homogeneous good. There are no barriers to firms entering and exiting the market. Marginal Cost (MC) is the addition to total cost (TC) for an increase in output (TP), or, the cost of producing an additional unit of output . MC = w / MP Average Cost (AC) is equivalent to the total cost of production divided by the number of units of output (TP) . AC = TC / TP 1 36 9 2 35 8 3 33 7 36 10 4 30 6 AC MC TC MP TP Inputs 35 26 21 15 8 3-1 11 5 5 6 4 7 3 5 2 3 1 40 80 120 160 200 220 260 300 340...
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- Spring '08
- Perfect Competition