 # Lesson 3-6 Short Run Equilibrium and Short Run Supply in Perfect Competition Short Run Equilibrium equals output level where MR = MC Firm will stay at.

## Presentation on theme: "Lesson 3-6 Short Run Equilibrium and Short Run Supply in Perfect Competition Short Run Equilibrium equals output level where MR = MC Firm will stay at."— Presentation transcript:

Lesson 3-6 Short Run Equilibrium and Short Run Supply in Perfect Competition Short Run Equilibrium equals output level where MR = MC Firm will stay at this output level unless something causes a change to its MR or MC curves. 4 possible total profit positions for a firm in SRE Supply Curve for Perfect Competition: Remember, Perfectly Competitive firm maximizes profit at which MR = MC, and Price = MR, so Price = MC, so firm will produce moving up and down along its MC curve.

Profit Maximization LO3 Cost and Revenue \$200 150 100 50 0 12345678910 Output Economic Profit MR = P MC MR = MC AVC ATC P=\$131 ATC=\$97.78 8-2

Loss-Minimizing LO3 Cost and Revenue \$200 150 100 50 0 12345678910 Output Loss MR = P MC AVC ATC P=\$81 ATC=\$91.67 AVC = \$75 8-3

Shutdown Case LO3 Cost and Revenue \$200 150 100 50 0 12345678910 Output MR = P MC AVC ATC P=\$71 AVC = \$74 Short-Run Shut Down Point P < Minimum AVC \$71 < \$74 8-4 Remember: Produce where MR=MC as long as P > AVC at that unit***

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