Econ 1201 1st EditionLecture 11Outline of Previous Lecture – Perfect CompetitionI. AssumptionsII. Short runIII. Long RunOutline of Current Lecture – Perfect Competition III. Perfect Competition in the short run (making profit, losing, breaking even, shut down)II. Perfect Competition in the long run (how does short run competition graph change?)Current LectureI. Perfect competition in the short runPROFIT --- [Long Run: firms continue to enter the market until they break even, new lower firm price because demand = marginal revenue at the break even point --> point A]These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.BREAKING EVEN --- covering all costs and opportunity costs LOSING MONEY --- but still running[LONG RUN: supply decreases because firms leave, the firm’s quantity will increase because since there will be less firms, each individual firm has to supply more]SHUT DOWN --- if the price gets any lower then the firm will shut down[LONG RUN: the firm will shut down]II. Long RunProductive Efficiency: produce at the lowest possible cost- Perfectly competitive firms can be productively efficient in the long run but only at the break even point in the short runAllocative Efficiency: producing the “right” things (that society values)Supply = Marginal CostsDemand = Marginal BenefitsMarginal costs = Marginal benefits if at equilibrium. This means consumer and producer surplus are
View Full Document