Foundations of Economics, 8th Edition

Chapter Summary

Key Points

1. Explain a perfectly competitive firm’s profit-maximizing choices and derive its supply curve.

   • A perfectly competitive firm is a price taker.

   • Marginal revenue equals price.

   • The firm produces the output at which price equals marginal cost.

   • If price is less than minimum average variable cost, the firm temporarily shuts down.

   • A firm’s supply curve is the upward-sloping part of its marginal cost curve at all prices at or above minimum average variable cost (the shutdo wn point) and the vertical axis at all prices below minimum average variable cost.

2. Explain how output, price, and profit are determined in the short run.

   • Market demand and market supply determine price.

   • Firms choose the quantity to produce that maximizes ...