ECO101H1 Lecture 14: Perfect Competition

• School: UTSG
• Department: Economics
• Course: ECO101H1
• Professor: all

Document Summary

Profit maximizing by a perfectly competitive firm in the short run (fixed cost) review: Produce q (quantity) where mr [ = p ] = mc. Firm"s dd schedule is perfectly elastic at market price p. If p < avc (average variable cost), shut down ; otherwise produce q. Mr = mc q* the profit maximizing output. Add atc (average total cost) schedule and compare p to atc. If commodity is infinitely divisible, there is a unique profit maximizing level of output at mr = mc. There is only one point where mr = mc. If commodity is not infinitely divisible, there must be 2 levels of output where profit is the same. Tr > tc profit tr / q > tc / q p > atc. Tr = tc breakeven p = atc. Tr < tc loss p < atc. Remember: profit = (p - atc) *q. Determine if should shut down in short run.