英文版微观经济学复习提纲Chapter 8. Firms in perfectly competitive markets.pdfVIP

8 Firms in Perfectly Competitive Markets Chapter Summary In a perfectly competitive market there are many buyers and many firms, all of whom are small relative to the total market. Products sold by these firms are identical and there are no barriers to new firms entering the market. Firms in a perfectly competitive market are unable to control the prices of goods they sell and are unable to earn economic profits in the long run. Prices in perfectly competitive markets are determined by the interaction of market demand and market supply. Since each firm must accept the market price, the firm is called a price taker. The objective of the firm is to maximise profit. Profit is the difference between total revenue and total cost. The firm will produce the output for which marginal revenue (MR) is equal to marginal cost (MC). (A characteristic of price taker firms is this: marginal revenue is the same as price. This is not true of other market structures.) In the short run the firm’s price: (a) will exceed its average total cost (ATC) which means it will make an economic profit, or (b) will equal ATC so its total cost will equal total revenue and it earns no economic profit, or (c) will be less than ATC, which means the firm experiences an economic loss. (Remember economic costs include all opportunity costs as well as explicit accounting costs.) A firm experiencing losses can continue to produce, it can stop production by shutting down temporarily, or it can go out of business. The third option is a long-run decision while the first two are short-run. In the short run, the firm can either produce the profit maximising level of output or produce zero output. If shutting down (Q = 0) would lose an amount greater than its fixed cost, the firm will shut down temporarily.