Chapter 14: Perfect Competition
At point Q1, Marginal Cost (MC) is
less than Marginal Revenue (MR).
At Q*, MC = MR, which will
At Q2, MC > MR, which means
you are losing money.
A firm will always produce where P = MC.
A firm’s supply curve is the same as its marginal cost curve.
Short-Run Showdown Decision
- Firm makes no revenue, but still has fixed costs like lease, insurance, security, etc.
- Saves money by not paying wages, raw materials, electricity.
- If you can cover the variable costs, it pays for the firm to stay open and keep producing.
- If you couldn’t bring in enough revenue to pay variable costs, shut down and cut losses.
- Conclusion: Firm will shut down if:
o Total revenue < Total variable costs A Competitive Firm’s Demand Curve
An individual firm’s demand curve in a perfectly competitive market is precisely the price level,
A Competitive Firm’s Short Run Profit