Chapter 14: Firms in Competitive Markets

This chapter talks about how the competitive market is affected. It talks about how firms can't change the prices of goods in a competitive market because it would not be convenient to them. It also talks about how in order to maximize profit, firms must find where the marginal cost equals the marginal revenue. It mentions how the effects of single buyers are negligible. Total revenue is proportional to the total output. The chapter talks again about how a competitive market has many buyers and sellers, and the goods that are offered by various sellers are largely the same. Therefore, firms are price takers, not price makers. A shutdown refers to a short-run decision not to produce anything during a specific period of time due to current market conditions. On the other hand, an exit refers to the long-run decision to to leave the market. When shutting down temporarily, the fixed costs still have to be paid by firms. The fixed cost of land is said to be sunk cost when referring to the fixed cost of of a short-run shut down during a season of a firm. In contrast, if a producer decides to shut down completely, they have the opportunity to sell the land. When a firm shuts down, they obviously lose all revenue. The firm shuts down if the revenue that it would get from producing is less than its variable cost in production.