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Firms in Competitive Markets

Firms in Competitive Markets. Chapter 14. Outline. What Is a Competitive Market? Profit Maximization and the Competitive Firm’s Supply Curve The Supply Curve in a Competitive Market Conclusion. What Is a Competitive Market?. The meaning of competition

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Firms in Competitive Markets

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  1. Firms in Competitive Markets Chapter 14

  2. Outline • What Is a Competitive Market? • Profit Maximization and the Competitive Firm’s Supply Curve • The Supply Curve in a Competitive Market • Conclusion

  3. What Is a Competitive Market? • The meaning of competition • The revenue of a competitive firm • Total revenue (TR) • Average revenue (AR) • Marginal revenue (MR)

  4. Profit Maximization and the Competitive Firm’s Supply Curve • A simple example of profit maximization • The MC curve and the firm’s supply decision • The firm’s SR decision to shut down • The firm’s LR decision to exit or enter a market • Measuring profit for a competitive firm graphically

  5. The Supply Curve in a Competitive Market • The SR market supply with a fixed number of firms • The LR market supply with entry and exit • Why do competitive firms stay in business if they make zero profit? • A shift in demand in the SR and LR • Why the LR supply curve might slope upward?

  6. Conclusion • Behind the supply curve

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