00:01
Explain why each of the following statements about profit maximizing competitive firms is incorrect.
00:07
A, a competitive firm will produce output up to the point where price equals average variable cost.
00:14
A competitive market will produce output where its marginal cost equals price.
00:19
Perfect competition output decision is price equals marginal cost.
00:26
B, the incorrect statement reads a firm's shutdown point comes where the price is less than the minimum average cost.
00:34
So the incorrect statement is saying price is less than average cost, and that is not correct.
00:48
A firm's shutdown point comes where price is less than the minimum average variable costs.
00:56
In the short run, firms exit the market if it is unable to cover their variable costs.
01:01
In the long run, firms exit if the price is less than minimum of average total cost.
01:06
However, shutdown point refers to a short run cost.
01:09
Condition.
01:12
See, the incorrect statement reads, a firm supply curve depends only on its marginal cost...