Ch24_PCprofitmax

Ch24_PCprofitmax - The Competitive Firm in the Short Run...

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The Competitive Firm in the Short Run MICROECONOMIC PRINCIPLES Remember that there are a few important characteristics of the competitive market which will affect the analysis of the individual firm: The competitive market - has many buyers and sellers so that behavior of one does not affect market - competition drives prices down to lowest cost - there is freedom of entry and exit for all firms in the market Each firm - every firm is a price taker - individual behavior does not affect market outcomes (P and Q) - firm has a horizontal demand curve with MR = d = P* (P* being the price determined by the market. What these characteristics summarize is that the individual firm has NO POWER to change market outcomes. Each firm can sell as much as they want (horizontal d) but must do so at the market price! The Production Decision (MC = MR) What we see is that because the individual firm has no control over price, the only thing they can control is their production. Each firm will choose an output level (production decision) to
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Ch24_PCprofitmax - The Competitive Firm in the Short Run...

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