In equilibrium rent fc payment to the fixed factor of

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In equilibrium , Rent = FC = Payment to the fixed factor of production. Q: How could a firm stay in business if it made zero profit? Q13 9
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4. Market supply curve The market supply curve is the sum of individual supply curves. But we also have to consider the market structure – the distribution of firms. A special case: Identical firms Suppose all firms are identical: no sunk costs, same AC and MC. The market supply curve is just flat : P = minAC, Q = Nq . 10
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More general case: Different firms Suppose every firm was identical in every way: same AC and MC; except they had different levels of fixed/sunk costs: high FC => low AVC; low FC => high AVC. - When P is low, the firm with lowest AVC produces first (i.e., move along its individual supply curve). 11
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- When P rises, the firm already in the market continues to produce more (an intensive margin adjustment); another firm with higher AVC starts producing (an extensive margin adjustment). - The market supply curve is the sum of all (upward-sloping) individual firm supply curves => * The market supply curve is upward-sloping . In equilibrium (zero profit): - The marginal firm earns _____ profit and ______ rent. - The intra marginal firms earn ______ profit and ______ rent. 12
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