Chaper+14+-+Micro

=Chapter 14 - Firms in Competitive Markets=


 * Competitive Markets**
 * Many buyers and sellers
 * Similar goods are sold by the sellers
 * Firms can enter or leave the market without paying anything

** Prices: ** A competitive firm is a price taker, because the price is set in a competitive market and since there are so many firms in the market and the change in one's price does not affect the total price in the market.
 * Revenue in a Competitive Market:** Total Revenue - Total Cost = Profit Total Revenue ÷ Amount of Output = Average Revenue **   Total Revenue at x amount of output - Total Revenue at x + 1 amount of output = Marginal Revenue **
 * For all firms, Average Revenue equals the price of a good/service
 * For all competitive firms, Marginal Revenue equals the price of a good/service


 * Profit Maximization and the Competitive Firm's Supply Curve**** The goal of a competitive firm is to maximize profit **
 * If MR > MC, the firm should increase production
 * If MR < MC, the firm should decrease production
 * If MR = MC, the firm is producing at the profit maximization point

The MC is the competitive firm's supply curve. Because the firm's marginal cost curve determines the quantity of the good the firm is willing to supply at any price, the marginal-cost curve is also the competitive firm's supply curve. In short, MC = S because the MC curve represents the Q supplied at any given price by the firms
 * Sunk Costs:** The cost that has already been committed and cannot be recovered
 * simply put, NO REFUNDS

** In a Long-term firm, the firm will enter the market when:
 * Long-term and Short-term Firms**** In a Long-term firm, the firm will exit the market when:
 * TR < TC
 * TR/Q < TC/Q
 * P < ATC
 * P > ATC

>
 * In a Short-term firm, the firm with shutdown: **
 * TR < VC.
 * TR/Q < VC/Q
 * P < AVC


 * Summery:**
 * In a competitive market, firms are price takers
 * Marginal Revenue = price
 * Competitive firm's goal: maximize profit
 * Entry into the market is free of charge
 * Exiting from the market is also free of charge
 * Sunk costs exist

Questions: Answers:
 * 1) What is needed to make a competitive market?
 * 2) Why does a long-term firm not make profit?
 * 3) When does a firm enter the market as a long-term firm?
 * 1) many buyers and many sellers with identical products sold by sellers
 * 2) because in a competitive market the entry into the market is free, when there is a profit, new firms will join the market until there are so many sellers that the price is lowered to a point where there is no profit.
 * 3) When Price is greater that the Average Total Cost