ECON 2005 Lecture Notes - Lecture 10: Average Variable Cost, Economic Equilibrium, Competitive Equilibrium
Document Summary
An industry structure where there are many small producers and consumers competing against one another. Firms can change output without affecting the price. All firms selling the same homogenous product. Consumers all know the fair price that a product should be sold for. Unrestricted entry and exit to the market. Prices not fixed or regulated by state. Profit = total revenue - total cost. The lowest point on average variable cost curve. If it dips below, best option is to shut down. The sum of the marginal cost curves (above avc) of all the firms in an. Firms can not survive with less than zero economic profit. Eventually, price becomes the same as marginal and average cost. If a firm is earning negative profit in the short run, it will shut down in the long run. If a firm in an industry earns positive economic profits, other firms will enter this industry and existing firms will expand.