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https://quizlet.com/_4az7q3

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competitive:
1. many buyers and sellers
2. identical products
3. price takers
4. free to enter/exit

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average revenue = marginal revenue = PRICE OF THE GOOD

MR = D = AR = P
Mr. Darp

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Total cost = fixed costs + variable costs

* when marginal revenue equals marginal cost, profit is MAXED
--> MR = MC
therefore...

if MR > MC, increase output

if MR < MC, decrease output

Profit is maxed when MR=MC or when P intersects MC

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Marginal Cost Curve and Firm's Supply Decision

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Marginal Cost Curve and Firm's Supply Decision

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short run supply curve = marginal cost curve above average variable cost curve

short run S = MC above AVC

long run supply curve = marginal cost curve above the average total cost curve

long run S = MC above ATC

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sunk cost = fixed cost during a shut down / cost that has already been committed

shut down if P < AVC

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Firm's Long Run Decision to Exit/Enter a Market

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Firm's Long Run Decision to Exit/Enter a Market

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enter  if P > ATC
exit if P < ATC

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Measuring Profit on Graph of Competitive Firm

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Measuring Profit on Graph of Competitive Firm

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profit = (P - ATC) * Q
loss = (ATC - P) * Q

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Short Run: Market Supply with a Fixed Number of Firms

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Short Run: Market Supply with a Fixed Number of Firms

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the individual firm supply IS the market supply

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Long Run: Market Supply with Entry and Exit

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Long Run: Market Supply with Entry and Exit

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efficient scale = long run equilibrium =  zero profit...when... MC = ATC

firm's zero profit condition is the market supply

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A Shift in Demand in the Short Run and Long Run

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A Shift in Demand in the Short Run and Long Run

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1. Market being in long-run equilibrium; firm earns zero profit

2. an increase in demand increases the price; short run profits appear

3. profits induce other firms to enter, and increase in supply decreases the price, long run equilibrium is restored

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Why the Long Run Supply Curve Might Slope Upward

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Why the Long Run Supply Curve Might Slope Upward

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1. resources in production are limited
2. firms have differing costs

*because firms can enter and exit easily in the long run versus the short run, the long run supply curve is more elastic than the short run supply curve

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MR > MC, increase output to raise profit

MR < MC, decrease output to raise profit

MR = MC, profit is maximized at that quantity

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MC is upward sloping and the ATC is u-shaped

because a firm is a price taker, the demand curve is perfectly elastic and horizontal

MR = D = AR = P

because a firm's MC curve determines the quantity of goods the firm is willing to supply at any given price, then the MC curve above AVC is the supply curve