Beruflich Dokumente
Kultur Dokumente
competition
Oktaviani Charra
Maura B. Alexandrina
CONCEPT
Perfect competition is
a market in which
TOTAL ANALYSIS
• Produces at the quantity
when the economic profit
is the highest
• Which is when TR curve
is above the TC curve and
at the largest gap
Firm’s Output Decision
MARGINAL ANALYSIS
Producing at maximum profit
MC = MR
• Producer would
continue to produce
until they get all the
profit from each goods
produced, which stops
at the MR=MC point.
• In the graph, after the
9th output, adding
output would result in
loss.
Shutdown Decision
• At MC = MR, when P < ATC, the firm
experiences economic loss.
• Economic Loss = TFC + (AVC – P) x Q
• Firm compare the loss between:
• Shutting down, Total Loss = TFC
• Keep producing and see if TR can cover
TVC.
• Therefore…
• TFC > TR > TVC keep producing
• TFC, TVC > TR shut down
Firm’s
Shutdown
Decision
• Below the shutdown point,
the firm shuts down.
• At the shutdown point, it’s
indifferent between shutting
down and producing.
Because any revenue
Shutdown point is wouldn’t cover the AFC.
the minimum AVC. • Above the shutdown point,
the firm produces loss-
minimizing output and
incurs a loss less than TFC.
Firm’s Supply Curve
is derived from the MC and AVC
Example for
Decrease in Demand
Change in Supply