chapter 15 - competitive markets - ECON 110

Average Revenue (AV)

TR/Q

MR (marginal revenue)

^TC/^Q

change in profit

MR - MC

TC (total cost)

FC + VC

TR (total revenue)

P • Q

Profit (method 1)

TR - TC

Profit (method 2)

(P-ATC) • Q

Shut down if:

TR < TC or P < AVC

Exit if:

TR < TC or P < ATC

Enter if:

P > ATC

profit maxxing

MR = MR

firm profit

P > ATC

firm loss

P < ATC

which 3 variables are the same?

P = AR = MR

when is supply more elastic?

supply is more elastic in long run

short run equilibrium

P = MC and P > ATC

which curve does P cross and where?

P crosses at the minimum of ATC

which curves show where firms produce

intersection on MR and MC

profit using marginals

MR > MC

loss using marginals

MR < MC

ATC (average total cost)

TC / Q

AVC (average variable cost)

VC / Q

to profit max when MR > MC a firm should:

increase output

to profit max when MR < MC a firm should

Decrease outputs

short run effect of increase demand

price and profits increase, number of firms is fixed

long run effect of _____

number of firms adjust as they exit and enter the market to find a new zero-profit equilibrium

what happens when a firm increase qty produced and sold by X%?

MR stays the same and revenue rises by X%

sunk cost

a cost already incurred that has no effect on present decision

in which term do fixed costs exist

fixed costs only occur in short-term, over time the fixed costs become variable

what makes a market perfectly competitive?

1. many firms

2. good are similar

3. firms can freely enter and exit the market

optimal quantity rule

P = MC

variable cost

AVC • Q