Chapter 8 Perfect Competition Economies of scale As you get longer larger you get better Long run size of plant Perfectly Competitive Firms are called price takers because they can only sell their products at the given price or else they will lose profit and or demand Because there are so many markets sellers no individual has any many market power Market Structure Perfect Industry Lots of sellers no individual has market power Price takers can t change the price No product differentiation No entry exit restrictions anyone can come and go as they wish Marginal Marginal profit to maximizing output Revenue Cost Profit TR TC TR P Q Av Cost Total Cost Quantity Firms always want to be at the point in which marginal revenue meets the marginal cost curve That is the only point they will make profit at and where the distance is the greatest The TC must be above the TR As long as more is added to TR than TC a firm is doing better profit maximization In the long run PC earns zero economic profit o Because it is covering opportunity cost bc there are no restrictions to entry and exit Marginal Lost or added o Marginal Revenue Added revenue o Additional revenue from selling one more bushel of wheat o A horizontal like demand bc it is at a fixed cost Marginal Cost total opportunity cost Where must AC cross the MC o Where MC meets MR AVC can drawn anywhere as long as the distance btwn it ATC gets smaller The PC firm earns positive economic profit when total revenue is than total cost to have positive economic profit
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