Microeconomics: Theory and Applications with Calculus, 4e

8.3 Competition in the Short Run

Having considered how firms maximize profit in general, we now examine the profit-maximizing behavior of competitive firms, paying careful attention to firms’ shutdown decisions. In this section, we focus on the short run, which is a period short enough that at least one input cannot be varied (Chapter 6).

Short-Run Competitive Profit Maximization

A competitive firm, like other firms, first determines the output at which it maximizes its profit (or minimizes its loss). Second, it decides whether to produce or to shut down.

Short-Run Output Decision.

 

We’ve already seen that any firm maximizes its profit at the output where its marginal profit is zero or, equivalently, where its marginal cost equals its marginal ...