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Lecture

Chapter 14 - Perfect Competition.docx

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Department
Economics
Course
ECON 1B03
Professor
Hannah Holmes
Semester
Winter

Description
Chapter 14: Perfect Competition At point Q1, Marginal Cost (MC) is less than Marginal Revenue (MR). At Q*, MC = MR, which will maximize profit. 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 Recall: Profit
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