Perfectly competitive market
a market in which economic forces operate unimpeded
For a market to be called perfectly competitive it must meet 6 conditions...
1 both buyers and sellers are price takers2 the number of firms is large3 there are no barriers to entry4 firms products are identical5 there is complete information 6 selling firms are profit meximising entrepreneuraial firms
price taker
is a firm or individual who rakes the price determined by market supply and demand as given
barriers to entry
are social, political or economic impediments that prevent firms from entering a market
marginal revenue (MR)
the change in total revenue associated with a change in quantity
marginal cost (MC)
the change in total cost associated with a change in quantity
market supply curve
is just the oricontal sum of all the firms' marginal cost curves taking account of any changes in input prices that might occur
normal profit
the amount the owners of business would have recieved in the next best alternative
shut down point
that point below which the firm will be better off if it temporarily shuts down then it will if it stays in business
profit-maximizing condition
MC= MR = P
the profit maximizing position of a competitive firm is..
where marginal revenue equals marginal cost
the supply curve of a competitive firm is its
margnial cost curve. only competitive firms have supply curves
to find the profit-maximizing level of output for a perfect competitor, you must
find that level of output where MC = MR. profit is price less average total coss timees output at the profit maximizing level of output
compair the short run to the long run for competive firms
in the short run competitive firsm can make a profit or loss, in the long run they make 0 profit
the shut down price for a perfectly competitive firm is
a price below average variable cost
the short run market supply curve is the
horizontal summation of the marginal cost curves for all firsm in the market. an increase in the number of firms in the market shifts the market supply curve to the right while a decrease shifts it to the left
perfectly competitive firsm make zero profit in the long run because
if profit were being made, new firms would enter and the market price would decline eliminating the profit. if losses were being made firms would exit and the market price would rise
the long run supply curve is
a scheduel of quantites supplied where firms are makign zero profit
constant-cost industries have
horizontal long-run supply curves
increasing-cost industries have
upward sloping long run supply curves
decreasing-cost industreis
have downward sloping long run supply curves