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How is a perfectly competitive firms marginal cost curve related to its supply curve?
Wiki User
∙ 14y ago
a perfectly competitive firms supply curve will be the portion of the marginal cost curve which lies above the average variable cost curve (AVC)..this will be due to the firms unwillingness to supply below the price in which they could cover their variable costs
Wiki User
∙ 14y ago
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Why does the marginal cost curve correspond to the supply curve?
A perfectly competitive firm's supply curve is that portion of its' marginal cost curve that lies above the minimum of the average variable cost curve. A perfectly competitive firm maximizes profit by producing the quantity of output that equates price and marginal cost. As such, the firm moves along it's marginal cost curve in response to alternative prices. Because the marginal cost curve is positively sloped due to the law of diminishing marginal returns, the firm's supply curve is also positively sloped.
A purely competitive firm's short-run supply curve is?
Because of the price taking nature of the firm in the perfectly competitive market. The supply curve would be the portin of the (Marginal Cost Curve) that disects the (P=Ar=Mr curves). Som from that point up would be the supply curve, to produce below that point would not be beneficial to the establishment. Up sloping and equal to the portion of the marginal cost curve that lies above the average variable cost. The demand curve is also perfectly elastic, this too contributes to the fact.
Definition of determinants of supply?
Assuming the market is perfectly competitive and there are no government imposed restriction, the quantity supplied will equal the quantity demanded, meaning the quantity demanded by buyers equals the quantity supplied by sellers.
In a perfectly competitive market a firm has to be either good or lucky?
This statement implies a firm must maintain proficiency in order to subsist in a perfectly competitive market. In perfectly competitive marketplace all prices are established by through supply/demand. Some firms may be a little on the lucky side while others may just be good. I will take luck any day however, at some point luck runs out and you better have learned something from your luck and apply it to being good. A firm in a competitive market must be efficient and find methods of production which yield the correct number of outputs and maintain fixed and variable cost of production at marginal levels.
What is the definition of competitive supply?
list examples of competitive supply
Why does the marginal cost curve correspond to the supply curve?
A perfectly competitive firm's supply curve is that portion of its' marginal cost curve that lies above the minimum of the average variable cost curve. A perfectly competitive firm maximizes profit by producing the quantity of output that equates price and marginal cost. As such, the firm moves along it's marginal cost curve in response to alternative prices. Because the marginal cost curve is positively sloped due to the law of diminishing marginal returns, the firm's supply curve is also positively sloped.
What is a firm's short run supply curve?
A perfectly competitive firm's supply curve is that portion of its marginal cost curve that lies above the minimum of the average variable cost curve.
A purely competitive firm's short-run supply curve is?
Because of the price taking nature of the firm in the perfectly competitive market. The supply curve would be the portin of the (Marginal Cost Curve) that disects the (P=Ar=Mr curves). Som from that point up would be the supply curve, to produce below that point would not be beneficial to the establishment. Up sloping and equal to the portion of the marginal cost curve that lies above the average variable cost. The demand curve is also perfectly elastic, this too contributes to the fact.
Definition of determinants of supply?
Assuming the market is perfectly competitive and there are no government imposed restriction, the quantity supplied will equal the quantity demanded, meaning the quantity demanded by buyers equals the quantity supplied by sellers.
A firm operating in a purely competitive resource market faces a resource supply curve that is?
B. Perfectly elastic This is because it is operating in a perfect competitive market
In a perfectly competitive market a firm has to be either good or lucky?
This statement implies a firm must maintain proficiency in order to subsist in a perfectly competitive market. In perfectly competitive marketplace all prices are established by through supply/demand. Some firms may be a little on the lucky side while others may just be good. I will take luck any day however, at some point luck runs out and you better have learned something from your luck and apply it to being good. A firm in a competitive market must be efficient and find methods of production which yield the correct number of outputs and maintain fixed and variable cost of production at marginal levels.
What is the definition of competitive supply?
list examples of competitive supply
If marginal revenue is less than average revenue will the demand curve be downward sloping?
This question reflects a fundamental misunderstanding of supply and demand. Marginal revenue and average revenue are related to a firm's cost function, and are thus connected to SUPPLY. They have nothing to do with a demand curve in classical economics, which is the marginal benefit to the CONSUMER of being in the market.
Is it possible for perfect competitive market to be inefficient?
It is possible for perfectly competitive markets to be inefficient when externalities are present. Externalities arise when an economic activity has an unintended impact on other economic agents and/or the market. This results in there being a socially optimal level of production that does not coincide with the privately determined equilibirum level of production derived from the supply and demand curves (which, respectively, represent the marginal private costs and marginal private benefits to producers and consumers). With respect to the efficiency of markets, positive externalities result in too little of the good in question being produced. In this case, the market equilibrium is lower than desired (the marginal social benefit curve lies above the marginal private benefit [demand] curve). In this case, the efficient market outcome would occur where the marginal social beneift curve interests the marginal private cost (supply) curve. When negative externalities occur, too much of the good in question is being produced. This results in the supply curve, which represents the marginal private costs of production, lying below the marginal social cost curve because the private cost curve fails to take into account the costs of production incurred by all of society. In this case, the efficient market outcome would occur where the marginal social cost curve coincides with the private marginal benefit (demand) curve.
Relationship between marginal cost and the supply curve for a purely competitive firm?
Marginal cost curve above the average variable cost curve, is the same as the short run supply curve. In perfect competition, MC=Price. It follows that production will be at that point. Hence the supply curve is the same as that part of the MC curve which is above AVC, where the firm can cover its variable cost....this is better than shutting down.
Why does price equal marginal revenue for a firm in a perfectly competitive industry?
In a perfectly competitive industry marginal revenue or (the cost to produce one more unit) stays constant so for example a pencil costs 1 dollar to make at the 101st pencil it will still cost 1 dollar to make. the price at which it must sell it at is also one dollar because if the company decides to raise the price it will lose all of its consumers to another firm competing with them that sells pencils at 1 dollar. the firm would be able to sell nothing at a higher price because the market is so competitive therefore, you can not raise the marginal revenue without raising the price and you cannot raise the price because the firm runs the risk of selling nothing therefore they stay equal. A perfectly competitive firm takes the market price as given, (They cannot set the price at which they sell the item the other firms through supply and demand have already sorted that out) so the firm-specific demand curve is horizontal. The firm can sell all it wants at the market price, but would sell nothing if it charged a higher price.
Explain the process that drives the economic profit to zero in the long run for a perfectly competitive firm?
In perfectly competitive markets, economic profits are zero in the long run because firms are able to enter and exit the market. If firms in a perfectly competitive market are profitable, there would be an incentive for new firms to enter. Supply would increase, causing an increase in quantity and the price to be driven back down to equilibrium: NO PROFIT! If firms in a perfectly competitive market are suffering a loss, some firms would choose to exit the market. Supply would decrease, causing a decrease in quantity and the price to be driven back up to equilibrium: NO PROFIT!
