Econ chapter 13

A firm maximizes profit when

marginal revenue equals marginal cost

Marginal revenue (MR)

is the change in total revenue associated with a change in quantity

Marginal cost (MC)

is the change in total cost associated with a change in quantity

The profit-maximizing condition of a competitive firm is:

MC = MR

For a competitive firm,

MR = P

If MR > MC,

�a firm can increase profit by increasing output

If MR < MC,

�a firm can increase profit by decreasing its output

�Total cost is the

cumulative sum of the marginal costs, plus the fixed costs

�Total profit is the

difference between total revenue and total cost curves

While the firm's demand curve is perfectly elastic,

the industry's demand curve is downward sloping

The market supply curve is the

horizontal sum of all the firms' marginal cost curves

The market supply curve takes into account

any changes in input prices that might occur

At long run equilibrium,

economic profits are zero

Normal profit

is the amount the owners would have received in their next best alternative

If the long-run industry supply curve is perfectly elastic,

the market is a constant-cost industry

If the long-run industry supply curve is upward sloping,

the market is an increasing-cost industry

If the long-run industry supply curve is downward sloping,

the market is a decreasing-cost industry

In the short run, the price does

more of the adjusting

in the long run, more of the adjustment is done

by quantity