The Determination of Price and Output by a Competitive Firm in the Short-Run
The short run equilibrium is characterised by two basic features. First, the average and marginal cost curves are U-shaped. Second, entry or exit of firms is insignificant so that abnormal profits or losses persist in short run. The short run average and marginal cost curves, with their typical U-shapes caused by the inability of the firms to increase some of their fixed factors further, contribute to sustain abnormal profits or losses.They are denoted as SAC (short run average cost), SAVC (short run average variable cost) and SMC (short run marginal cost) instead of the general notation of AC, AVC and MC. Under these two features, the equilibrium of a competitive firm in short run, thus, may involve either abnormal profits or losses or even normal profits as shown in Figures…