Term Test 2 Lisa's Rules

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Lisas MC Rules
1)Is the firm profit-maximizing?
choose q* such that MR = MC
(* in perfect competition MR = P)
2)At q*, will they shut down?
-shut down if P < AVC
-stay open if P AVC
Perfect Competition vs. Monopoly
1)Find MR Curve
PC: Price takers (MR = P)
Mono: Derive MR from DD
2)Profit-max choose q* such that MR = MC
PC & Mono same
3)Choose price
PC: Price takers
Mono: Price makers
choose Pm to clear market
Long Run Equilibrium
PC π = 0
Mono π 0
Allocative Efficiency
PC: always!
Mono: only when outcome same as PC (that is, at q*, MC = DD)
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