Competitive Firms

Competitive Firms - Competitive Firm’s Supply Curve A...

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1 Competitive Firms 1. Competitive firms. 2. Profit-maximizing quantity. 3. Firm’s supply curve. 4. Law of Supply. Definition A competitive firm is one that is so small relative to its market that it has effectively no control over its price. The individual competitive firm’s demand curve has infinite elasticity (is horizontal), even though the market demand curve is not. Profit-Maximization for a Competitive Firm • Produce only if P>AC for some quantities. • If the firm produces, produce the quantity where P=MC (zero markup). The rules for choosing the profit-maximizing quantity are the same as before:
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Unformatted text preview: Competitive Firm’s Supply Curve A competitive firm’s supply curve shows its profit-maximizing quantity as a function of the market price. A non-competitive firm (= a firm facing a negatively-sloped demand curve) has no supply curve. Law of Supply Higher prices increase the quantity supplied. Elasticity of Supply Definition: The price elasticity of supply indicates the percentage change in quantity supplied for each percentage change in price. High elasticity indicates that price changes have a relatively big effect on quantity supplied....
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