But now let's imagineĪ shock to the market somehow, let's say a new Situations would get us back to an equilibrium state that looks something like this. Then firms are running economic losses and you will have people exiting the industry. ![]() If marginal revenue isīelow average total cost at that quantity, well If marginal revenue were higher than average total cost at this quantity, well then you would have other entrants into the market because you're having positive economic profit. Your average total cost is equal to your marginal revenue. And it's also gonna be the point where you have zero economic profit, where at that quantity, let's say the quantity for the firm, Talked about the fact that the rational quantityįor this firm to produce would be where marginal revenue intersects marginal cost. That's going to define that the firm's marginal revenue, not just this firm, but all of the participants of the market. To be the price that the firms have to take and we've talked about that at length in other videos. Supply and demand curves, that that's just going And on the left you can see that this equilibrium price which is set by the intersection of the They have the same cost structure, there's noīarriers to entry or exit. Many firms producing, they're non-differentiated, Perfectly competitive situation where you have Let's say this is the market for apples and this is idealized Or long run steady state for a perfectly competitive market. ![]() Have here we can view as the long run equilibrium
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