perfect_competition

The economist says that a firm maximizes profits when

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Unformatted text preview: person says that a firm maximizes profits when total revenue minus total cost is as large as possible and positive. The economist says that a firm maximizes profits when it produces the level of output at which MR=MC. Explain how the two ways of looking at profit maximization are consistent. • Why are market supply curves upward sloping? Perfect Competition In The Long Run The following conditions characterize long run equilibrium: 1. Economic profit is Zero: Price is equal to shortrun average total cost (SRATC) 2. Firms are producing the quantity of output at which Price is equal to Marginal Cost (MC) 3. No firm has an incentive to change its plant size to produce its current output; that is, SRATC=LRATC at the quantity of output at which P=MC. Long Run Competitive Equilibrium Exists When The Following Occur • There is no incentive for firms to enter or exit the industry • There is no incentive for firms to produce more or less output. • There is no incentive for firms to change plant size. The Perfectly Competitive Firm and Productive Efficiency Productiv...
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