Lesson 3-6Short Run Equilibrium and Short Run Supply in

Perfect Competition• Short Run Equilibrium equals output level where MR = MC• Firm will stay at this output level unless something causes a

change to its MR or MC curves.• 4 possible total profit positions for a firm in SRE• Supply Curve for Perfect Competition:• Remember, Perfectly Competitive firm maximizes profit at

which MR = MC, and Price = MR, so Price = MC, so firm will produce moving up and down along its MC curve.

Profit Maximization

LO3

Co

st a

nd

Rev

enu

e

$200

150

100

50

01 2 3 4 5 6 7 8 9 10

Output

Economic Profit MR = P

MCMR = MC

AVC

ATC

P=$131

ATC=$97.78

8-2

Loss-Minimizing

LO3

Co

st a

nd

Rev

enu

e

$200

150

100

50

01 2 3 4 5 6 7 8 9 10

Output

Loss

MC

AVCATC

P=$81

ATC=$91.67

AVC = $75

8-3

Shutdown Case

LO3

Co

st a

nd

Rev

enu

e

$200

150

100

50

01 2 3 4 5 6 7 8 9 10

Output

MR = P

MC

AVC

ATC

P=$71

AVC = $74

Short-Run Shut Down PointP < Minimum AVC

$71 < $74

8-4

Remember: Produce where MR=MC as long as P > AVC at that unit***