Here we consider economic profit competitive market

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Here we consider economic profit.
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Competitive Market in the Short Run. Amount of capital (K) held is fixed # firms is fixed (no entry or exit) (a) The short-run quantity decision Firms take price as given Firms face short-run cost curves (as capital is fixed) Problem of the competitive firm: Max (q) = TR(q) TC(q) Necessary condition: MR = MC. With price taking behavior p=MC(q) optimal q*
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Competitive Market in the Short Run.
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Competitive Market in the Short Run. The shutdown condition and short run supply curve. Price (q) ≥AVC(q) otherwise shutdown. If satisfy this shutdown condition, firm will supply the level of output that satisfies: P = MR = MC
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Competitive Market in the Short Run.
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Competitive Market in the Short Run. Aggregate Supply Curve: aggregating (“Add up”) supplied quantities across all firms in industry. Q agg = q 1 +q 2 +…+q n
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Competitive Market in the Short Run.
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