Perfect competition in the short run

Perfect competition in the short run

Lessons

Short-Run Market Supply Curve

The short-run market supply curve shows the quantity supplied by all \, the firms in the market as price varies.


Short-run market supply curve

The firms will do one of 3 things in the supply curve:

  1. At the shutdown price, firms will choose to either choose to shutdown, or produce the shutdown quantity.
  2. When the price is below the shutdown price, firms will shutdown and not produce.
  3. When the price is above the shutdown price, firms will produce at the given output.

Short-Run: Equilibrium, & Market Demand Changes

The short-run supply curve and the market demand curve determines the equilibrium price and quantity.


Short-run: equilibrium, & market demand changes

Note: The equilibrium is found at the intersection.


Recall that the market demand curve can change in 2 ways.


Case 1: The demand increases, causing the curve to shift rightward. The result would be an increase to both the market price and the output.


Case 2: The demand decreases, causing the curve to shift leftward. The result would be a decrease to both the market price and the output.


Short-run: equilibrium, & market demand changes

Short Run: Economic Profit & Loss

There are 3 possible outcomes in the short run for firms who are perfectly competitive.


Case 1: Suppose the demand curve is in D1D_1. Then the firm breaks even and does not gain any profit or loss. This is because p = ATC \, at the profit-maximizing output.


Short run economic profit & loss

Case 2: Suppose the demand curve is in D2D_2. Then the firm gains economic profit. This is because p > ATC \, at the profit-maximizing output.


Short run economic profit & loss

Case 3: Suppose the demand curve is in D3D_3. Then the firm has economic loss. This is because p < ATC \, at the profit-maximizing output.


Short run economic profit & loss
  • Introduction
    Perfect Competition in the Short Run Overview:
    a)
    Short-Run Market Supply Curve
    • Quantities supplied by all firms
    • Profit maximized supply curve for each firm
    • Vertical, Horizontal, & Curves Up
    • Every firm has the same output

    b)
    Short-Run: Equilibrium, & Market Demand Changes
    • Demand curve is a downward sloping line
    • Intersection of Demand & Supply \, \, equilibrium
    • Increase in Demand \, \, Output \, \uparrow \, Market Price \, \uparrow \,
    • Decrease in Demand \, \, Output \, \downarrow \, Market Price \, \downarrow \,

    c)
    Short Run: Economic Profit & Loss
    • Case 1: Break-even (p = ATC)
    • Case 2: Economic Profit (p > ATC)
    • Case 3: Economic Loss (p < ATC)