MICRO ECOMOMICS OREGON STATE UNIVERSITY CH. 13

The short-run market supply curve is

*Adding the quantities of all firms in the market. The market supply curve is found by adding the quantities of the individual firms at any given price. If all firms are identical, the market quantity is the individual quantity times the number of firms.

For a perfectly competitive firm, the short-run supply curve is

*The marginal cost curve above minimum AVC. For a perfectly competitive firm, the short run supply curve is the marginal cost curve above minimum average variable cost

A perfectly competitive firm is producing at an output at which marginal revenue is less than marginal cost. To maximize profit, the firm should:

If the firm is producing at a quantity at which marginal revenue is less than marginal cost, it can do better by producing less output. At the optimal output, marginal revenue should be equal to marginal cost. Likewise, if the price of output falls, the quantity at which marginal revenue is equal to marginal cost will be lower.

In a perfectly competitive market, MR =

In a perfectly competitive market, MR = Price MR = Average revenue MR = Δ in total revenue/ Δ in quantity.

In a perfectly competitive market in the short run, an increase in demand causes equilibrium price to:

In the short-run, an increase in demand shifts the demand curve to the right, causing equilibrium price and quantity to increase. In the long-run, in response to this higher price, new firms enter, shifting the supply curve to the right, causing equilibrium price to return (decrease) to the long-run equilibrium and the equilibrium quantity

Total Revenue =

Price x Quatitiy

What is a true statement about the long-run supply curve for a perfectly competitive industry`

The long-run supply curve for a perfectly competitive industry may be horizontal or upward sloping, depending on the cost structure of the industry. Each point on the long run supply curve shows the minimum average total cost of the last firm to enter the industry. If firms are identical, this is the same for every firm. Some firms are more efficient, and thus their minimum ATC will be less than the market price, allowing them to earn an economic profit. The market price will equal the minimum ATC of the last firm to enter. This firm is less efficient than (some) previous firms, and thus this marginal firm will not earn economic profits.

In perfectly competitive industries, individual buyers and sellers have no impact on price because

The presence of competition limits the ability to set price. In perfectly competitive industries, firms and buyers cannot impact price because they are too small relative to the size of the market. In other words, the presence of competition limits the ability to set price.

As more firms enter the market

The short-run market supply curve shifts to the right