A firm should expand output as long as its average total revenue exceeds its average total cost. The owners will shut down a competitive firm if the price of its product falls below its minimum average total cost. The short-run supply curve for a competitive firm is the same as its marginal cost curve above the horizontal axis. Industry supply is the sum of the supply curves of all the individual firms. If firms exit an industry, the industry supply curve shifts leftward.
Allocative efficiency occurs when total social cost equals total social benefit.
Patents create monopolies by restricting demand. If the elasticity of demand is less than 1, a monopoly's total revenue increases when price decreases. Monopolies often earn positive economic profit because they receive government subsidies. An unregulated monopolist will lower price when fixed costs fall marginal costs fall. Because of differing elasticities of demand.