lkaktera.blogg.se - Econ- perfect competition supply shift and marginal cost

Firms are maximizing profits when they produce up until P=MC.

For market supply, we have to multiply that quantity by the number of firms in the market.

That intersection point gives how much an individual firm produces.

(Recall, for a price-taking firm marginal revenue is equal to the price.) This is illustrated in the above graph where MC (blue line) intersects the Market Price (red dashed-line). As price-takers, firms will produce where the Market Price=Marginal Cost.The graph above illustrates the important points about a firm's profit-maximizing decision in a perfectly competitive market. (Intuition: imagine your grade in Econ 20A as the marginal grade, when you get an A what does it does to your grade point average?) The MC curve intersects the ATC at the minimum of ATC.But, as production increases so does average total costs as variable costs become more important. Average total costs (ATC) are decreasing in production, at first, as fixed costs are the predominant cost at low quantities.Marginal costs (MC) are increasing over the range of production relevant to firms' decision-making.Recall, from the discussion of firms' cost curves: