Exhibit 8-18 A typical firm in a perfectly competitive market

In Exhibit 8-18, assume the perfectly competitive firm is in long-run equilibrium and there is an increase in demand. As a result, the firm in the short run will increase output along its:

Question

Exhibit 8-18 A typical firm in a perfectly competitive market

In Exhibit 8-18, assume the perfectly competitive firm is in long-run equilibrium and there is an increase in demand. As a result, the firm in the short run will increase output along its:

Quizplus · Accepted Answer

In the short run, the firm will increase output at the point where marginal revenue (equal to the price in a perfectly competitive market) intersects with the short-run marginal cost curve, which is curve B. The short-run average total cost curve (curve A) and the long-run average cost curve are irrelevant in determining the firm's output decision in the short run. The firm will only shut down if the price falls below its shutdown point, which is where the price intersects with the minimum point of the firm's AVC curve.

Exhibit 8-18 a Typical Firm in a Perfectly Competitive Market