# Competitive Output ## Profit Maximization > [!caution] Assumption We assume that the only goal of a firm is maximized > profit. - Profit ($\Pi$)= Revenue ($R$)- Cost ($C$) - Economic Profit is 0 can be a good thing! - Economic profit is different from accounting profit. - In calculating economic profit, opportunity cost is considered - Marginal Cost > Marginal Revenue -> You should decrease your output - Marginal Cost = Marginal Revenue -> Profit maximized - Assumption: Price doesn't change ## Different Market Structures - The demand as a whole could be inelastic, but the demand at each individual business is not. - Price takers vs. price makers ## Competitive Output - Shutdown-or-not situation - In the short-run, your fixed cost is still out there - If P < AVC, then you should shutdown - If P > AVC, we still earn some revenue to cover the fixed cost - Perfectly competitive market -> Price is determined by market and fixed -> MC = P -> Economic profit is 0, long-run equilibrium - ==Long-run competitive equilibrium point: P = MC = ATC== - Firms will enter industry if and only if P > ATC - At the equilibrium, P = ATC, economic profit is 0, but the accountant profit is positive - Long-run supply curve - A horizontal line, the price always goes back, in this case it is _constant cost industry_ - _Increasing cost industry_, the more firms participating, the higher the cost, in such case the price will rise steadily. e.g. oil and limited resources - _Decreasing cost industry_, long-run supply curve slopes down, as the bigger the industry, the lower the cost, e.g. assembly line, computers and cars ## Conclusion