Principles+of+Economics+7th+Edition+Mankiw-Solution+Manual Chapter 14

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1、Chapter14/FirmsinCompetitiveMarkets❖26114FIRMSINCOMPETITIVEMARKETSWHAT’SNEWINTHESEVENTHEDITION:Therearenomajorchangestothischapter.LEARNINGOBJECTIVES:Bytheendofthischapter,studentsshouldunderstand:Øwhatcharacteristicsmakeamarketcompetitive.Øhowcompetitivefirmsdecid

2、ehowmuchoutputtoproduce.Øhowcompetitivefirmsdecidewhentoshutdownproductiontemporarily.Øhowcompetitivefirmsdecidewhethertoexitorenteramarket.Øhowfirmbehaviordeterminesamarket’sshort-runandlong-runsupplycurves.CONTEXTANDPURPOSE:Chapter14isthesecondchapterinafive-chap

3、tersequencedealingwithfirmbehaviorandtheorganizationofindustry.Chapter13developedthecostcurvesonwhichfirmbehaviorisbased.ThesecostcurvesareemployedinChapter14toshowhowacompetitivefirmrespondstochangesinmarketconditions.Chapters15through17willemploythesecostcurvesto

4、seehowfirmswithmarketpower(monopolistic,monopolisticallycompetitive,andoligopolisticfirms)respondtochangesinmarketconditions.ThepurposeofChapter14istoexaminethebehaviorofcompetitivefirms—firmsthatdonothavemarketpower.Thecostcurvesdevelopedinthepreviouschaptershedli

5、ghtonthedecisionsthatliebehindthesupplycurveinacompetitivemarket.KEYPOINTS:·Becauseacompetitivefirmisapricetaker,itsrevenueisproportionaltotheamountofoutputitproduces.Thepriceofthegoodequalsboththefirm’saveragerevenueanditsmarginalrevenue.·Tomaximizeprofit,afirmcho

6、osesaquantityofoutputsuchthatmarginalrevenueequalsmarginalcost.Becausemarginalrevenueforacompetitivefirmequalsthemarketprice,thefirmchoosesquantitysothatpriceequalsmarginalcost.Thus,thefirm’smarginal-costcurveisitssupplycurve.©2012CengageLearning.AllRightsReserved.

7、Maynotbescanned,copiedorduplicated,orpostedtoapubliclyaccessiblewebsite,inwholeorinpart.Chapter14/FirmsinCompetitiveMarkets❖261·Intheshortrunwhenafirmcannotrecoveritsfixedcosts,thefirmwillchoosetoshutdowntemporarilyifthepriceofthegoodislessthanaveragevariablecost.I

8、nthelongrunwhenthefirmcanrecoverbothfixedandvariablecosts,itwillchoosetoexitifthepriceislessthanaveragetotalcost.·Inamarketwithfreeentryandexit,p