Chapter+14+JK+&+JJ

=__//**Firms in Competitive Markets**//__=

=Competitive Market= __Definition__ So what is a competitive market? aka perfectly competitive market. Well, a competitive market is a market with **many buyers and sellers** that no one buyer or seller has control over the price given that the **product being sold has almost no difference**. In other words the sellers and the buyers in that market are both //price takers.// Although these two factors of the of a competitive market, there is also a third factor. The third factor states that **firms can freely enter or exit the market**. __The Revenue of a Competitive Firm__ Most firms tries to maximize their profit. The profit in which the seller receives is the TOTAL REVENUE minus COST OF PRODUCTION(aka Total cost). Now as you know, markets in a competitive markets are price takers. In other words it does not matter how much quantity you may produce. People in economics usually say the Quantity determines the Price; however in a competitive market the Price determines the Quantity produced in the market. __Average Revenue__ Average Revenue tells how much total revenue you per unit. That is why average revenue is (Total Revenue/Quantity). Keep in mind that Average Revenue is the price at which the EVERY seller sells at. __Marginal Revenue__ Marginal Revenue is the change in total revenue divided by the quantity. That is why Marginal Revenue is never labeled in next to a quantity, it is always labeled between the change in total revenue. For competitive firms, marginal revenue equals the price of the good. (marginal revenue equals the price of the good, in a competitive firm)

=Profit Maximization and the Competitive Firm's Supply Curve= __A Simple Way to Find Profit Maximization & Firm's Supply Decision__ Every seller wants to earn money. In order to do this, firms will try to maximize their profit. This is found by finding where the Marginal Revenue and Marginal Cost is equal to. It can also be found by using the Change in Profit. Once the Change in Profit(MR-MC) declines, firms will produce no more than that level. This graph show the profit maximization for a competitive firm, as explained before (These apply not only to firms in a competitive market but also other firms)
 * If marginal Revenue is greater than marginal cost, the firm should increase its output
 * if marginal cost is greater than marginal revenue, the firm should decrease its output
 * At the profit-maximizing level of output, marginal revenue and marginal cost are exactly equal

Always remember that MR is Price and it is must be equal to MC for the firms to produce at that level __The firm's Short Run Decision to Shut Down__

__Sunk Cost__ __Firm's Long Run Decision to Exit or Enter a Market__ Exit if Enter if __Profit for the competitive Firm__ P = TR - TC P = (TR/Q - TC/Q) X Q P = (P - ATC) X Q PROFIT LOSS In some cases it is best for the firms to shut down and not produce at all than to make something. If your cost is below the AVC, you are basically losing money for every output you produce. Although you may still lose money when producing above the AVC and below ATC. The price between the AVC and ATC is the fixed cost, and in the long run the firm will be able to pay for the fixed cost so they will earn profit in the Long Run(which we will learn about later). =The Supply Curve in a Competitive Market= __Short Run: Market Supply with a Fixed Number of Firms__ Individuals have to set a their MC to the Price in the Market, that's why the Quantity at which a firm produces(MC of the firm = P of the Market) is a portion of the Market Supply. __Long Run: Market Supply with Entry and Exit__ Profit = (P - ATC) X Q __Why Do competitive firms Stay in Business if They make Zero Profit?__ In the zero-profit equilibrium, the firm's revenue must compensate the owners for the time and money that they expended to keep their business going __Shift in Demand in the short Run and Long Run__ a as you can see in the picture below the market begins in long-run equilibrium and has a firm earning a profit of zero b in situation b you have an increase in demand which raises the price leading to short run profit c however when there is profits, then other firms will enter resulting in an increase in supply and due to those increase in supply some will have to exit the market; however, the important thing is that the equilibrium has come again. __Why the Long-Run Supply Curve Might Slope Upward__ Two reasons
 * TR < VC
 * TR/Q < VC/Q
 * P < AVC
 * a cost that has already been committed and cannot be recovered
 * opposite of opportunity cost
 * TR < TC
 * TR/Q < TC/Q
 * P < ATC
 * P > ATC
 * Some resources used in production may be available only in limited quantities.
 * Firms have different cost.