EC120 Lecture 14: Firms in Competitive Market II

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15 Nov 2015

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Ec120 lecture #14 firms in competitive market ii. Shut down not out of the market completely; just in a particular season" we shut down if the price is lower than the minimum of the average variable cost. The firm"s long-run decision to exit or enter the market. Long run: the exit price coincides with the minimum point on the average-total-cost curve. Measuring profit in our graph for the competitive firm: profit = total revenue total cost, profit = (price average total cost) x quantity. Profit as the area between price and average total cost. In the short run, you can continue operating because you still need to pay off the variable costs. Simply multiply the quantity by the amount of firms selling in order to get the market supply. In this case, we will multiply 100 by 1,000 to find out how much the market will produce at . 00.

Related Questions

If firms in a competitive market have different cost functions, then

	A.	there is no short-run market supply curve.
	B.	the market supply curve reflects those firms' operating envelopes, even in the short run.
	C.	some of the firms will shut down because their costs are too high to compete.
	D.	the firms' marginal costs will be different at the market price.

Match the following.

constant-cost industry	A market structure in which a large number of firms sell a homogenous product or service with no restrictions on entry or exit and each firm is a price-taker.
increasing-cost industry	The demand facing a price-taking firm.
long-run equilibrium	A firm produces zero output but must still pay its fixed costs.
marginal revenue product	Price below which a firm shuts down in the short run.
perfect competition	All firms produce where price equals long-run marginal cost, and economic profits are zero.
perfectly elastic demand	Industry in which input prices rise as all firms in the industry expand output.
shut down	Industry in which input prices remain constant as all firms in the industry expand output.
the shut-down price	The additional revenue earned by hiring one more unit of a variable input.

viridianhare336

Refer to the above figure. If the price is $6 in the short run, what will happen in the long run?

a.	Individual firms will earn negative economic profits in the short run, which will cause some firms to exit the industry.
b.	Individual firms will earn positive economic profits in the short run, which will entice other firms to enter the industry.
c.	Because the price is below the firm's average variable costs, the firms will shut down.
d.	Nothing. The price is consistent with zero economic profits, so there is no incentive for firms to enter or exit the industry.

greenkoala16

EC120 Lecture 14: Firms in Competitive Market II

EC120 Full Course Notes

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