perfect_competition

A firm that produces its output at the lowest

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Unformatted text preview: rice = Marginal Cost is said to exhibit resource allocative efficiency. • A firm that produces its output at the lowest possible per unit cost is said to exhibit productive efficiency. The Perfectly Competitive Firm and Resource Allocative Efficiency For the perfectly competitive firm, P=MR. Also, the firm maximizes profits or minimizes losses by producing that quantity of output at which MR=MC. Because P=MR and MR=MC, it follows that P=MC, that is the perfectly competitive firm exhibits resource allocative efficiency. Profit Maximization and Loss Minimization for the Perfectly Competitive Firm: Three Cases Profit Maximization and Loss Minimization for Perfect Competition • A firm produces in the short run as long as price is above average variable cost. • A firm shuts down in the short run if price is less than average variable cost. • A firm produces in the short run as long as total revenue is greater than total variable costs. • A firm shuts down in the short run if total r...
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This note was uploaded on 09/16/2012 for the course ECONOMICS 90 taught by Professor Srinivas during the Spring '12 term at SMU.

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