16 Perfect Competition 3

16 Perfect - Perfect Competition 3 12:00 AM MR=P ONLY for a Perfectly Competitive Firm MR=P is only true for firms in competitive markets Rule

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Perfect Competition 3 2/18/11 12:00 AM MR=P ONLY for a Perfectly Competitive Firm MR=P is only true for firms in competitive markets Rule: MR=MC at the profit maximizing Q A Firm With Profits Graph on slide 3 A Firm with Losses Graph demonstration on slide 4 Review If P>ATC, then firm is profitable in the SR; and there will be an incentive for other firms to enter this industry If P=ATC, then firm is breaking even If P< ATC, then firm is incurring a loss in the SR o Will keep operating of P ATC o Will shutdown if P<ATC If P<ATC, then firm is incurring a loss in the SR; and existing firms will exit this industry A Competitive Firm’s SR Supply Curve Graph on slide 6- one individual firm’s If P ATC, then firm produces Q where MR=MC The firm’s SR supply curve is the portion of its MC curve above AVC In the short run, because fixed cost is a sunk cost, we can ignore it and deal with AVC as shown above SR Market Supply Curve All firms are identical, i.e. cost structure
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This note was uploaded on 02/17/2011 for the course ECON 011 taught by Professor Yezer during the Spring '07 term at GWU.

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16 Perfect - Perfect Competition 3 12:00 AM MR=P ONLY for a Perfectly Competitive Firm MR=P is only true for firms in competitive markets Rule

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