ECON 310 Lecture 6: l310x6
Document Summary
Lecture 6 -- supply function of a competitive firm: introduction. Equilibrium price is determined by market supply and demand. Individual firms take the market price as exogenous. An individual firm can sell as much as it wants at the market price. Key idea == the demand curve faced by an individual firm is perfectly elastic at the equilibrium price. Marginal revenue == additional revenue received from selling last unit of output. Since, for a competitive firms, all units of output sold are sold at the equilibrium price, marginal revenue is the price. Short-run == firm has fixed costs that have already been paid. This means that the firm will lose the fixed cost even if it decides not to produce anything. Key idea == firm will produce if total variable cost is less than total revenue. Another way of saying this is that the firm will produce if average variable cost is less than the price.