Lab
The Competitive Firm Graph
Each graph shows one firm in a perfectly competitive market: its marginal cost, its average total cost and the horizontal price line, which is also its marginal revenue. Label the axes and name both curves first. Then decide what the situation changes, move the price line, and drag the round point to the quantity the firm produces. On paper, draw the market beside the firm: the market price is set where market demand and market supply cross, and the firm takes it.
Challenges
- In each short-run situation, say whether the firm earns economic profit or takes a loss at the new price, by comparing the price with ATC at your point.
- In the long-run situations, why does the price stop exactly at the lowest point of ATC, and not above or below it?
- Draw the market graph that goes with each situation on paper: which market curve moved, and which way?