Scot Wick Blog

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 5 Firm Behavior and the Organization of Industry Chapter 14 of 36 - Firms In Competitive Markets Section 18 of 22 … Per Figure 7 panel (a) In the long run firms enter or exit the market until economic profit is driven to zero. If price (P) > average total costs (ATC) there are profits, this encourages new firms to enter the market. If P < ATC there are losses, this encourages some existing firms to exit the market. … The process of firms entry into and exit from the market ends when P settles at ATC. Each competitive firm maximizes profits (or minimizes losses) by choosing a quantity at which P = marginal cost (MC). Market free entry and exit eventually forces P = ATC. Therefore at market equilibrium, P = MC = ATC and there is no further market entry and exit. MC = ATC only when the firm is operating at minimum ATC. … Panel (a) shows a firm’s long-run equilibrium lowest cost efficient scale. P ...

  Mostly summarized from Gregory Mankiw’s Principles of Economics, 5th Ed. PART 5 Firm Behavior and the Organization of Industry Chapter 14 of 36 - Firms In Competitive Markets Section 16 of 22 … Figure 6 - Short-Run Market Supply In the short run, the number of firms in the market is fixed. As a result the market supply curve, panel (b) reflects the individual firms' marginal-cost curves of panel (a). Here, in a market of 1,000 firms the quantity of output supplied to the market is 1,000 times the quantity of 100 supplied by each firm. … Table 2 and Figure 4 from Chapter 13 attached for reference review of marginal cost components. … There are two market supply curve cases to consider · short-run situation: a market with a fixed number of firms · long-run situation: a market where the number of firms change as firms exit and enter the market Over short periods of time it is difficult for firms to quickly enter and exit a market, so the assumption is there are a fixed number of fir...