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Lesson 3-6 Short Run Equilibrium and Short Run Supply in Perfect Competition Short Run Equilibrium equals output level where MR = MC Firm will stay at.

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Presentation on theme: "Lesson 3-6 Short Run Equilibrium and Short Run Supply in Perfect Competition Short Run Equilibrium equals output level where MR = MC Firm will stay at."— Presentation transcript:

1 Lesson 3-6 Short Run Equilibrium and Short Run Supply in Perfect Competition Short Run Equilibrium equals output level where MR = MC Firm will stay at this output level unless something causes a change to its MR or MC curves. 4 possible total profit positions for a firm in SRE Supply Curve for Perfect Competition: Remember, Perfectly Competitive firm maximizes profit at which MR = MC, and Price = MR, so Price = MC, so firm will produce moving up and down along its MC curve.

2 Profit Maximization LO3 Cost and Revenue $200 150 100 50 0 12345678910 Output Economic Profit MR = P MC MR = MC AVC ATC P=$131 ATC=$97.78 8-2

3 Loss-Minimizing LO3 Cost and Revenue $200 150 100 50 0 12345678910 Output Loss MR = P MC AVC ATC P=$81 ATC=$91.67 AVC = $75 8-3

4 Shutdown Case LO3 Cost and Revenue $200 150 100 50 0 12345678910 Output MR = P MC AVC ATC P=$71 AVC = $74 Short-Run Shut Down Point P < Minimum AVC $71 < $74 8-4 Remember: Produce where MR=MC as long as P > AVC at that unit***


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