Chapter 14

Chapter 14's focus was to expand more on how firms are affected in competitive markets, taking a more in-depth look at revenue and maximizing profit. Firms, depending on costs and profit, will decide to shut down production for however long is needed, or shut down permanently to not deal with the overpowering costs and no profit. However they go about it, the decision must be made based on short and long run effects. One of the main reasons to shut down would be because the average cost to make the good is more than the actual price of the good, in which selling at a loss would cost the firm much more than just paying fixed costs for the firm while it's shut down. This lets the firm decide whether to shut down permanently, or wait it out and see if the price of good rises (or it costs less to make it overall). Sunk costs are introduced, in which many ignore due to the fact that they're unavoidable when dealing with certain parts of production for a firm. The decision to enter or exit a market in the long run for the firm depends on, mainly, profit, total cost, total revenue, and quantity of the good. Because of how important they are, firms have to take all variables into account when dealing with this type of situation. For some, the short run might be awful but might pay off overall in the long run, with this risk involved on whether they should stay in the market or exit completely.