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In perfect competition, an individual firm
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faces a perfectly elastic demand
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Perfect competition exists in a market if
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there are many firms producing an identical product
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Total economic profit is
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total revenue minus total opportunity cost
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In perfect competition
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all firms in the market sell their product at the same price
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Because each perfectly competitive firm sells a product identical to that of other firms,
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each firm;s output is a perfect substitute for the output of any other firm
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In perfect competition, the marginal revenue of an individual firm
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equals the price of the product
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The owners will shut down a perfectly competitive firm if the price of its good falls below its minimum
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average variable cost
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If the market price of a perfectly competitive firm's product is below its average variable cost, then the firm's
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total revenue if it stayed open wold be less than its total variable costs
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If a perfectly competitive firm finds that it is producing an amount of output such that MR > MC and P > AVC, it will
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increase its output
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By producing less, a firm can reduce
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its variable costs but not its fixed costs
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If the price of its product falls below the minimum point on the AVC curve, the best a perfectly competitive firm can do is to
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shut down and incur an economic loss equal to its total fixed cost
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In the short run, a perfectly competitive firm's economic profits
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might be positive, negative (economic loss), or zero (normal profit)
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A perfectly competitive firm initially is earning zero economic profit. Then, a decrease in demand for the firm's product occurs. In the long run, which of the following actions will this firm (most likely) take?
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Exit the market
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In the long-run equilibrium in a perfectly competitive market,
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the firms' owners make a normal profit
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Today, firms in a perfectly competitive market are making an economic profit. In the long run, firms will enter the market until all firms in the market are
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making zero economic profit
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In the long run, perfectly competitive firms make zero economic profit. This result is due mainly to the point that a perfectly competitive market has
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no barriers to entry and exit
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In the long-run equilibrium, perfectly competitive firms produce the level of output such that
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marginal cost equals the price, and average total cost is minimized
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In the long-run equilibrium in a perfectly competitive market, the firms produce at the lowest possible average total cost and the price equals the
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lowest possible average total cost
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In the long-run equilibrium, perfectly competitive firms produce where
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average total cost is minimized
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In the long-run equilibrium for a perfectly competitive market,
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there is no incentive for entry or exit, average total costs of production are minimized, and the firms' economic profits are zero
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Consumer surplus
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plus producer surplus is maximized when resources are used efficiently
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