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| QUICK REVIEW 23-1 |
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- In a purely competitive industry a large number
of firms produce a standardized product and there are no significant barriers to entry.
- The demand seen by a competitive firm is
perfectly elastic--horizontal on a graph--at the market price.
- Marginal revenue and average revenue for a
competitive firm coincide with the firm's demand curve; total revenue rises by the product
price for each additional unit sold.
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| QUICK REVIEW 23-2 |
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- Profit is maximized
or loss minimized
at that
output at which marginal revenue (or price in pure competition) equals marginal cost.
- If the market price is below the minimum average
variable cost
the firm will minimize its losses by shutting down.
- The segment of the firm's marginal-costcurve
which lies above the average-variable-costcurve is its short-run sup- ply curve.
- Table 23-8 summarizes the MR 5 MC approach to
determining the competitive firm's profit-maximizing output. It also shows the equivalent
analysis in terms of total revenue and total cost.
- Under competition
equilibrium price is a given
to the individual firm and simultaneouslyis the result of the production (supply)
decisions of all firms as a group.
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| QUICK REVIEW 23-3 |
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- In the long run
the entry of firms into an
industry will compete away any economic profits and the exit of firms will eliminate
losses so that price and minimum average total cost are equal.
- The long-run supply curvesof constant-
or
increasing-
and decreasing-cost industries are horizontal
upsloping
and downsloping
respectively.
- In purely competitive markets both productive
efficiency (price equals minimum average total cost) and allocative ef- ficiency (price
equals marginal cost) are achieved in the long run.
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