10/22/20141 Firms in Competitive Markets Chapter 14

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

10/22/20143 What Is a Competitive Market? The meaning of competition The meaning of competition The revenue of a competitive firm The revenue of a competitive firm – Total revenue (TR) – Average revenue (AR) – Marginal revenue (MR)

10/22/20144 Profit Maximization and the Competitive Firm’s Supply Curve A simple example of profit maximization A simple example of profit maximization The MC curve and the firm’s supply decision The MC curve and the firm’s supply decision The firm’s SR decision to shut down The firm’s SR decision to shut down The firm’s LR decision to exit or enter a market The firm’s LR decision to exit or enter a market Measuring profit for a competitive firm graphically Measuring profit for a competitive firm graphically

10/22/20145 The Supply Curve in a Competitive Market The SR market supply with a fixed number of firms The SR market supply with a fixed number of firms The LR market supply with entry and exit The LR market supply with entry and exit Why do competitive firms stay in business if they make zero profit? Why do competitive firms stay in business if they make zero profit? A shift in demand in the SR and LR A shift in demand in the SR and LR Why the LR supply curve might slope upward? Why the LR supply curve might slope upward?

10/22/20146 Conclusion Behind the supply curve Behind the supply curve