Theory of the Competitive Firm
the first time you go through each of these topics you should click on
the following items in sequence.
to the lecture
a quick quiz
|We are now ready
to move on in our study of how producers determine how much to produce,
given their costs of production and the way the price of their product
is determined in a competitive market.
To understand why competition
is a precondition for allocative efficiency in a free-market economy
To demonstrate how a perfectly
competitive firm is a "price-taker", maximizing profit or minimizing loss
by expanding production in the short run to the point where marginal cost
equals marginal revenue
To show why marginal cost is
equal to price at the competitive firm's profit maximizing (or loss minimizing)
level of output
To introduce the idea of a "normal
return" and show how it is related to the process by which competitive
firms and the industry they comprise achieve a long term equilibrium position
To explain the concept of elasticity
To demonstrate how market price
is determined by the interaction of demand and supply schedules.