micro.pptx - Short-Run Profit Maximization by a Competitive...

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Marginal revenue equals marginal cost at a point at which the marginal cost curve is rising.Short-Run Profit Maximization by a Competitive Firm
CHOOSING OUTPUT IN THE SHORT RUNThe Short-Run Profit of a Competitive FirmA Competitive Firm Making a Positive ProfitIn the short run, the competitive firm maximizes its profit by choosing an output q* at which its marginal cost MC is equal to the price P(or marginal revenue MR) of its product. The profit of the firm is measured by the rectangle ABCD. Any change in output, whether lower at q1or higher at q2, will lead to lower profit.
CHOOSING OUTPUT IN THE SHORT RUNThe Short-Run Profit of a Competitive FirmA Competitive Firm Incurring LossesA competitive firm should shut down if price is below AVC.The firm may produce in the short run if price is greater than average variable cost.Shut-Down Rule: The firm should shut down if the price of the product is less than the average variable cost of production at the profit-maximizing output.
THE COMPETITIVE FIRM’S SHORT-RUNSUPPLY CURVE
Producer Surplus in the Short Run
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VC
FC
CHOOSING OUTPUT IN THE LONG RUNLong-Run Competitive EquilibriumEntry and ExitLong-Run Competitive Equilibrium
D
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Long-Run Competitive Equilibrium

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