Chapter 14

Chapter 14 covered the firms in competitive markets and their costs and firms. A big theme was what causes a firm to shut down or exit a market. Meaning that it compared the costs firms face in perfect competitive markets to their profits, both in the short and long run. The chapter introduces many new equations and additions to old familiar graphs. Like, most chapters, this stuff seems pretty common sense-y, but also like one mix up could make you mess up a whole concept. Overall, a decently easy chapter, for now. Some ideas the chapter covers is a switch from marginal cost to marginal revenue and how that helps analyze how well a firm is doing. For instance, if marginal revenue is less than marginal cost, the firm is losing profit and should decrease their production. And marginal revenue and cost are equal when the firm is producing at maximum profit. We learn that firms choose to shut down, which is temporary and they still lose fixed cost, when their market price is less than the average variable cost, and a market will exit a market the price is less than the average total cost, and enter when price is more than average total cost. In some instances, a firm will be more profitable when it shuts down instead of exiting a market, because it of the sunk costs (fixed costs that still need to be paid during unproductivity), which can be irrelevant (this idea is still iffy to me).