The firm's supply of output is revealed from the firm's marginal cost curve. Show
Marginal Cost as the Supply of Output This page describes a relationship between a firm's marginal cost curve (MC) and the firm's supply of the the output. Restated, as the price of the output (MR) rises or falls, profit maximizing quantity of output (where MR = MC) also rises and falls. This idea that a firm will produce and sell a different quantity of output based on the market price of the product is the same idea that the quantity of a product supplied will rise and fall as the market price rises and falls. Accordingly, the marginal cost curve (MC) is that firm's supply curve for the output; as price of output rises, the firm is willing to produce and sell a greater quantity. Combining the MC curves for all the firms producing the product is the supply curve for the industry.
Example to illustrate the impact of technology Technology shifts the TPP or production function (higher), TVC (lower), and the marginal cost curve (lower). The MC curve illustrates the firm's supply curve for it output. Thus a change in technology shifts the firm's (and the industry's) supply curve.
This relation is described in the determinents of supply, but now we have an understanding of the intermediate steps that lead to that outcome. In summary
The next section explains strategies a manager may pursue when the business is unprofitable. This is a preview. Log in through your library. Abstract Growth in this model is driven by technological change that arises from intentional investment decisions made by profit-maximizing agents. The distinguishing feature of the technology as an input is that it is neither a conventional good nor a public good; it is a nonrival, partially excludable good. Because of the nonconvexity introduced by a nonrival good, price-taking competition cannot be supported. Instead, the equilibrium is one with monopolistic competition. The main conclusions are that the stock of human capital determines the rate of growth, that too little human capital is devoted to research in equilibrium, that integration into world markets will increase growth rates, and that having a large population is not sufficient to generate growth. Journal Information Current issues are now on the Chicago Journals website. Read the latest issue.One of the oldest and most prestigious journals in economics, the Journal of Political Economy (JPE) presents significant and essential scholarship in economic theory and practice. The journal publishes highly selective and widely cited analytical, interpretive, and empirical studies in a number of areas, including monetary theory, fiscal policy, labor economics, development, microeconomic and macroeconomic theory, international trade and finance, industrial organization, and social economics. Publisher Information Since its origins in 1890 as one of the three main divisions of the University of Chicago, The University of Chicago Press has embraced as its mission the obligation to disseminate scholarship of the highest standard and to publish serious works that promote education, foster public understanding, and enrich cultural life. Today, the Journals Division publishes more than 70 journals and hardcover serials, in a wide range of academic disciplines, including the social sciences, the humanities, education, the biological and medical sciences, and the physical sciences. Rights & Usage This item is part of a JSTOR Collection. OUTLINE -- LESSONS 8/9a, 8/9b 8/9a Pure Competition - Characteristics and Short Run EquilibriumI. Benefit-Cost Analysis and Producer Decisions A. Decision: How Many to Produce: II. The Product Market A. Circular Flow Model C. General Outline for Each Model1. Characteristics and Examples III. Pure Competition. A. DefinitionA market structure in which a very large number of firms sell a standardized product into which entry is very easy in which the individual seller has no control over the product price and in which there is no nonprice competition; a market characterized by a very large number of buyers and sellers. IV. Short Run Profit Maximization: Benefit-Cost Analysis Approach A. Benefit-Cost Analysis1. definitionthe selection of ALL possible alternatives where the marginal benefits are greater than the marginal costselect all where: MB > MC How to find the profit maximizing quantity:A firm will maximize its profit (or minimize its losses) by producing that output at which marginal revenue and marginal cost are equal provided product price is equal to or greater than average variable cost C. Three Cases -- using BOTH cost schedules and graphs1. profit maximizing casea) step 1: find quantity where MR = MC
2. loss minimizing casea) step : find quantity where MR = MC V. Profit Maximization: total cost minus total revenue approach A. Short Run 8/9b Pure Competition - Long Run Equilibrium and EfficiencyVI. Pure competition in the Long Run A. Assumptions From the Textbook: IF DEMAND INCREASES, PRICE WILL INCREASE NEW FIRMS WILL ENTER AND PRICE WILL FALL BACK TO WHERE IT WAS 2. exodus of firms eliminates losses From the Textbook: IF DEMAND DECREASES, PRICE WILL DECREASE FIRMS WILL GO OUT OF BUSINESS AND PRICE WILL RISE BACK TO WHERE IT WAS D. Pure competition: Long-run equilibrium graph
VII. Pure Competition and Efficiency !!!!!!!!!!!!!!!! A. Competitive Markets Used as Standard of Efficiency -- The "Invisible Hand" of Capitalism How to find the productively efficient quantity:Society will achieve productive efficiency by producing that output at which the average total cost (ATC) is at a minimum C. Purely competitive firms achieve Allocative Efficiency1. definitionThe apportionment of resources among firms and industries to obtain the production of the products most wanted by society (consumers);
VIII. Advantages and Disadvantages of the Competitive Price System [From: http://www.economicshelp.org/microessays/markets/efficiency-pc.html] When technology improves the firm's marginal cost curve shifts?When technology improves, the firm's marginal cost curve shifts: Downward and supply increases. Megan used to work at the local pizzeria for $15,000 per year but quit in order to start her own deli.
Which of the following best explains why the price marginal cost relationship improves as production increases multiple choice question?Which of the following best explains why the price-marginal cost relationship improves as production increases? At the very early stages of production, marginal product is low, making marginal cost unusually high.
Which of the following reasons explains why the purely competitive firm's demand curve is perfectly elastic?Which of the following reasons explains why the purely competitive firm's demand curve is perfectly elastic? Because the individual firm is a price taker, the marginal revenue curve coincides with the firm's equilibrium price.
Why does marginal revenue decrease in monopolistic competition?This is because the price remains constant over varying levels of output. In a monopoly, because the price changes as the quantity sold changes, marginal revenue diminishes with each additional unit and will always be equal to or less than average revenue.
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