ECO1104 Nov. 28 , 2013
YUJIE YI #7038840
Chapter 14 Firms in Competitive Markets
The demand curve
Condition for profit maximization
Shortrun supply curve
Longrun supply curve
The Demand Curve for a Firm in a Competitive Market
In a competitive market, firms are price takers.
Firms take the market price as given.
Firms are willing and able to sell any quantity at the given market price.
Perfectly elastic firm’s demand curve
MR = P for a Firm in a Competitive Market
A competitive firm can keep increasing its output without affecting the market price
So each oneunit increase in Q causes revenue to rise by P, i.e., MR = P
1 4 MR = P is only true for firms in competitive market
Question: what Q maximizes the firm’s profit?
To find the answer:
“Think at the margin.”
If increase Q by one unit, then revenue rises by MR and cost rises by MC.
If MR > MC, then increase Q to raise profit
If MR MC, the increase of Q raises profit.