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Prices and Output decisions for
The FIRM In Purely Competitive Market Structure
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Profit, Loss, and Shutdown
MC Break-even point ATC E P5 MR5 Shutdown point D AVC MR4 PRICE P4 C MR3 P3 B P2 MR2 A P1 MR1 Q1 Q2 Q4 Q5 Q3 QUANTITY
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Profit, Loss, and Shutdown
MC ATC E P5 MR5 Economic Profit D AVC MR4 PRICE P4 C MR3 P3 B P2 MR2 A P1 MR1 Q2 Q4 Q5 QUANTITY
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Profit, Loss, and Shutdown
MC ATC E P5 MR5 D AVC MR4 PRICE P4 Loss C MR3 P3 B P2 MR2 A P1 MR1 Q2 Q4 Q3 QUANTITY
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Long-run equilibrium for the purely competitive firm
MC Zero Economic Profit ATC MR PRICE P Q QUANTITY
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How an increase in demand changes long-run equilibrium for the Firm and the Industry
MC ATC $60 $60 $50 $50 PRICE $40 PRICE D1 D Q Q Q1 Q2 Q1 QUANTITY QUANTITY
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Because demand increases, D→D1, the price rises in the industry
The rise in price raises the MR curve (remember P=MR) for the firm This rise in price allows the firm to reap economic profits in the short-run Firms in other industries, see these economic profits (profit is the motivator) In the long-run, the “unseen hand” goes to work, and because of ease of entry, firms enter this industry The increase in the number of suppliers (rotteN), increases supply, S→S1 The increase in supply lowers the price in the industry The 2 shifts in the same direction, with certainty, increases quantity although price is indeterminate Only firms that can operate efficiently, at this new equilibrium price, will remain in the industry
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How a decrease in demand changes long-run equilibrium for the Firm and the Industry
MC ATC $60 $60 $50 $50 PRICE $40 $40 D PRICE D1 Q Q1 Q Q2 Q1 QUANTITY QUANTITY
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