This chapter was easier to understand than the previous one. I would give this a rating of 2/3 though because I had a more difficult experience with interpreting the graphs on marginal cost in the supply curve. However, the book explained well enough for me to understand it in the end. Also, something I found interesting in this chapter is the idea of sunk costs.
This chapter first introduces and expands on the concept of competitive markets. In a competitive market, the actions of any single buyer or seller in the market have a negligible impact on the market price. Buyers and sellers are at the mercy of the price, so they are called price takers.
Competitive markets' goals are to maximize profit. This chapter is talking about another way to interpret equilibrium price, as they said that this is done by producing at the quantity at which marginal cost equals marginal revenue. This is because marginal cost is the firm’s supply curve and this curve creates an equilibrium with the firm’s demand curve or the marginal revenue.
Also, competitive firms stay in the market even at zero-profit equilibrium because the total cost factored in include opportunity costs. This means they earn an accounting profit. In this chapter, they introduced the effects on short run and long run. In the short run, if a firm cannot recover its fixed costs, they will shut down. If in the long run, the firm operates below average total cost, the firm will exit the market. Also factored in its decision to exit, are sunk costs. Sunk costs are costs that have already been committed and cannot be recovered. A good example was the one that the book gave, which was about the $7 you lost for a movie ticket. It's long gone, no point in crying about it.
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