Chapter 14 Firms in Competitive Markets

Chapter 14 Firms in Competitive Markets - long run,...

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Chapter 14 Firms in Competitive Markets 1) Large Number of Sellers and Large number of Buyers 2) Identical Goods – Homogenous Goods 3) Free Entry and Exit Agricultural Market Stock Exchange Market Firm’s demand is perfectly elastic which means that it is parallel to the horizontal line Conditions of Equilibrium or Competitive Firm in the Short Run To Maximum Profit Competitive Firm will get equilibrium Where:(1) MR = MC (2) MC must be incrasing when MR=MC Firms short-run supply curve is the portion of marginal cost curve lies above AVC In the short run the firm will shut down if the price is less than the average variable cost Spilt milk and other sunk costs Sunk cost – has already been committed and cannot be recovered. - Ignore them when making decisions The firms long-run supply curve is the portion above the average variable cost. In the
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Unformatted text preview: long run, competitive firms will exit the market if the rpice is below the average total cost. Profit In the short run there are three types of firm 1) Economic Profit Earning Firm 2) Normal profit earning earning Firm Know the four graphs that appeared in ATC MR 300 milliong gallons of milk Milk equilibrium, where demand equals supply All the firms are price demand and average revenue will remain and one and the same He knows how to use his resources productively and at full capacity As he has control over the cost curve. His cost curves will be below the revenue curve Where marginal revenue equals marginal cost Profit = (Price ATC) x Qs...
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