Chapter 14

Chapter 14 is about how firms want to maximize profits with production decisions in competitive markets. Buyers and sellers need to accept the prices in the market and are seen as price takers. Three characteristics make up perfectly competitive markets: 1. There are many buyers and sellers in the market. 2. The items offered by the numerous sellers are largely the same. 3. Firms can freely enter or exit the market. Average revenue is the total revenue divided by the quantity sold. For all firms, the average revenue equals the price of the good. The marginal-cost curve, on a graph, is also the competitive firm's supply curve because it determines the quantity of the good the firm is willing to supply at any price. The competitive firm's short-run supply curve is the portion of the marginal-cost curve that is above AVC. The competitive firm's long-run supply curve is the portion of its marginal-cost curve that is above ATC. A firm's profit is (P-ATC) X Q. The process of exit and entry ends only when price and average total cost are driven to equality. Since firms can enter and exit more easily in the long-run than in the short-run, the long-run supply curve is more elastic than the short-run supply curve. I thought this chapter had helpful graphs for visualization. For example: Figure 8 had numerous graphs depicting the increases in demand in the short-run and long-run, which was helpful in understanding this concept.