ECON281 Lecture 9: Econ 281 - Lecture 9.docx
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Each seller"s input purchase are so small that he/she perceives no effect on input prices: all firms (industry participants and new entrants) have equal access to resources (technology, inputs) 9. 3 how the market price is determined: short-run equilibrium. Short run supply curve: the firm"s short run supply curve tells us how the profit maximizing output changes as the market price changes, when nsfc = 0, and thus tfc = sfc. If the firm chooses to produce a positive output, p = smc defines the short run supply curve of the firm. Shut down price: the price below which the firm would opt to produce zero output is called the shutdown price, ps. In this case, ps is the minimum point on the avc curve: the firm will choose to produce a positive output only if: The firm loses less by producing than by shutting down because of sunk costs.
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