Chapter 8

Supply Behavior of a
Competitive Firm
Market Economy Firm maximizes profit
1.Firms are price takers
2.Firm is so small compared to the size of the
market.
3.There are many firms each producing identical
products.
4.Firms are acting independently and not colliding.
5.Firms can easily enter and exit the market.
6.Firms faces a completely horizontal demand
(dd)curve.

The Industry demand curve showing inelastic

demand on a competitive equilibrium, however for
a firm is just a tiny part of the market thus the
demand become completely elastic.

Profit is maximize where MC=Price

SUPPLY BEHAVIOR OF A COMPETITIVE

INDUSTRIES

Firms Supply Curve, inelastic, Market

Supply is Elastic

Short-Run > demand shifts produce greater price

adjustment and smaller quantity adjustment.
Example:
Long-Run> Quantity is Greater.

Special Cases of
Competitive Market
General Rule:
1.Change in Demand will increase
the price.
2.Increase in Supply will lower price.

Increase of output is directly proportional to

the increase on input