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Firms in Competitive Markets (The Supply curve in a Competitive market…
Firms in Competitive Markets
A Competitive market
The meaning of competition
Many buyers and many sellers
Same good
Freely enter or exit the market
The revenue of a Competitive firm
Total Revenue
Average Revenue = Price (P)
Marginal Revenue (MR)
MR = P in competitive markets
Profit maximization and The competitive Firm's supply curve
Profit maximization
Maximizing the different between total revenue and total cost
MR = MC
P=AR=MR
The competitive Firm's supply curve
The MC as the competitive Firm's supply curve
MR > MC increase Q
MR < MC decrease Q
MR = MC => Profit is maximized
The Firm's Short run decision to Shut down
Rules for Shut down
TR < VC
AR < AVC
P < AVC
Sunk cost
Fixed cost is a sunk cost
The Firm's Long run decision to Exit or Enter
Rules for Exit
TR < TC
AR < AC
P < ATC
Rules for Enter
TR > TC
AR > AC
P > ATC
The Supply curve in a Competitive market
Short-run Supply curve
Long-run Supply Curve
Exit and Entry in the Long-run
The number of firms can change
Positive profit
New firms enter
P falls
The Short-run supply curve shifts right
If zero profit => stop entry
Loss profit
Some firms exit
The Short-run curve shifts left
P rises
Zero profit => Stop exit
The Zero-Profit condition
Zero economic profit in the Long-run
P = ATC
P = MC = ATC
Why the Long-run Supply curve might Slope Upward
Horizontal curve
Identical costs
Costs does not change
Two reasons
Firms have different costs
Costs rise as Firms enter the market
Vietnam-Netherlands Programme - 2017
Do Huu Luat