average variable cost is the competitive firm’s short-run supply curve H. In the long run , the firm exits if the revenue it would get from producing is less than its total cost • Exit… o If TR < TC o If TR/Q < TC/Q o If P < ATC • A firm will enter the industry if such an action would be profitable • Enter… o If TR > TC o If TR/Q > TC/Q o If P > ATC • Competitive firm’s long-run supply curve is the portion of its marginal-cost curve that lies above average total cost I. Profit = ( P – ATC ) X Q
Economics 101H Vandan Desai P a g e | 3 III. The Supply Curve in a Competitive Market A. Short-Run Supply Curve —the portion of its marginal cost curve that lies above average variable cost B. Long-Run Supply Curve —the marginal cost curve above the minimum point of its average total cost curve C. Market supply = sum of the quantities supplied by the individual firms in the market D. The Short Run: Market Supply with a Fixed glyph1197umber of Firms i. For any given price, each firm supplies a quantity of output so that its marginal cost equals price ii. The market supply curve reflects the individual firms’ marginal cost curves E. The Long Run: Market Supply with Entry and Exit i. Firms will enter or exit the market until profit is driven to zero ii. In the long run, price equals the minimum of average total cost iii.
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