All firms max profit when they produce where the MC curve crosses the MR curve. For a perfectly competitive firm , MR=Demand; it is completely horizontal and is exactly the market price. Profit max: MC=MR. Eco profit where P>ATC. Eco loss where P<ATC. Normal profit where P=ATC. Eco profit is above normal profit, and eco loss is profit below normal profit. TP=TR-TC=[p x q] – [ATC x q] . Firm will shut down when P<AVC. Perfect competition: (1) lots of firms and buyers (2) no barriers to entry (3) identical product. Market determines price, which is equal to MR curve and coincides with firm’s demand curve. Monopolies: (1) one firm (2) product has no close substitutes (3) huge barriers to entry or exit. For a monopoly, the D and MR curves are not the same. Firm produces where MC=MR, but charges at the price on the demand curve corresponding to the vertical line representing quantity. Create DWL. Price discrimination: (1) charging different customers different prices for the same product (2) charging a customer different prices for different units of a good. To occur, there must be (1) different classes of customers, (2) different willingness to pay, (3) way to prevent resale. Single price monopolies don’t price discriminate. Tech eff: firm produces output using least amt of inputs. Eco eff: firm produces output at least cost. 4 firm concentration ratio: % of the value of sales accounted for by 4 largest firms; low conc rate -> high degree of competition. Economies of scale: cost of producing a unit of a good falls as its output rate increases. Economies of scope: firm uses specialized resources to produce a range of goods and services; avg costs fall. LRAC is rel b/w lowest attainable ATC and output when firm can change both plant it uses and quantity of labor it employs. Min eff. scale:
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