econ101911 - Microeconomics Oct 19th 2011 Supply Curves and...

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Microeconomics Oct. 19 th , 2011 Supply Curves and Marginal Revenue How perfectly-competitive firms would set output. If there are such firms. The BIG Ideas Perfectly competitive firms produce until MU = MC This is irrelevant because there are no perfectly competitive firms. Monopolies produce where MC = Marginal Revenue At MU = MC, firms lose money on some output because they are not accounting for fixed inputs. Rational firms establish monopolies to raise prices, reducing production until MC = MR. Orthodox bottom line: Supply Curves slope up and firms produce where MU = MC The punch line and the real story: It ain't necessarily so. Downward sloping because of MU Perfectly competitive firms ignore their effect on market prices and think only of marginal costs
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They act as if they face a perfectly flat demand curve where they can sell any amount at a constant price Middle: MU = MC Why do marginal costs rise?
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