Microeconomics Draw a perfectly competitive firm showing zero economic profit Why is the marginal revenue for a perfectly competitive firm horizontal They re price takers Marginal revenue Additional revenue for selling one more unit of a product For there to be zero economic profit where do you draw the average total cost curve Curve with lowest point at the intersection of MC and MR Why in the long run must a perfectly economic firm have zero economic profit If a firm is making a lot of profit then more firms will come in price will go down and economic profit will go to zero There are no barriers to entry Show a perfectly competitive firm earning positive economic profit short run only AC P1 MC ATC AVC MR D Q Q1 profit maximizing quantity TR P x Q P1 x Q1 TC AC x Q AC x Q1 ATC MC ATC P1 MR1 Q Q1 AC x Q has to be less than Shaded profit Zero economic profit You are earning your opportunity cost Economic profit You are earning more than your opportunity cost P C Economic Profit Loss P1 ATC1 MC ATC MR Square Loss Q Characteristics of market structure in PC Buyers and sellers are informed Easy of entry exit All products are homogeneous Zero economic profit in the long run
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