Week 7 - Competitive Firms Flashcards
1
Q
What are the three rules of output for competitive firms?
A
- Output is set to maximise profit
- Output is set where marginal profit = 0
- Output is set where MR = MC
2
Q
How do you find the amount to produce? (q*)
A
q* = dProfit/dq = 0 or MR-MC = 0
3
Q
What is the relationship between P, MC and MR in competitive markets?
A
P=MC=MR
4
Q
What are the long run assumptions of competitive markets?
A
P = ATC
- No fixed costs
- No firms making losses (forced to exit)
- No economic profits or losses
5
Q
What is the shape of the demand curve in competitive markets?
A
horizontal line
6
Q
How is Q* and P* displayed graphically?
A
Where MC intersects the demand curve
