Authors libby rittenberg 492

generate a market supply curve that reflects marginal cost Provided there are no external benefits or costs in producing a good or service, a perfectly competitive market satisfies the efficiency condition KEY TAKEAWAYS  Price in a perfectly competitive industry is determined by the interaction of demand and supply  In a perfectly competitive industry, a firm’s total revenue curve is a straight, upward-sloping line whose slope is the market price Economic profit is maximized at the output level at which the slopes of the total revenue and total cost curves are equal, provided that the firm is covering its variable cost  To use the marginal decision rule in profit maximization, the firm produces the output at which marginal cost equals marginal revenue Economic profit per unit is price minus average total cost; total economic profit equals economic profit per unit times quantity  If price falls below average total cost, but remains above average variable cost, the firm will continue to operate in the short run, producing the quantity where MR = MC doing so minimizes its losses  If price falls below average variable cost, the firm will shut down in the short run, reducing output to zero The lowest point on the average variable cost curve is called the shutdown point  The firm’s supply curve in the short run is its marginal cost curve for prices greater than the minimum average variable cost TRY IT! Assume that Acme Clothing, the firm introduced in the chapter on production and cost, produces jackets in a perfectly competitive market Suppose the demand and supply curves for jackets intersect Attributed to Libby Rittenberg and Timothy Tregarthen Saylor URL: http://www.saylor.org/books/ Saylor.org 492