ECON 1116 Lecture Notes - Lecture 9: Marginal Revenue, Perfect Competition, Fixed Cost
Document Summary
Short run and long run effects of increase in demand: A firm begins in long run equilibrium but then an increase in demand raises p leading to sr profits for the firm over time profits induce entry shifting s to the right reducing p. Always produce where marginal cost is equal to marginal revenue. Determine this firms profit and identify the area on the graph that represents the profit. In the above graph of quantity vs price, the firms profit is 4 $ quantity of 50 units is produced at the price of . In the long run a typical firm earns zero profit. Each firm by definition produces maximum quantity i. e. as much as you can. If you raise your price the buyers will go to another supplier. Shutdown: a short run decision not to produce anything because of market conditions. Exit: a long run decision to leave the market.