Figure 2: Diagram to show why firms in perfect competition can only make losses in the short-run

Figure 2 above shows ______________________________________________________________________________,

with _________________________________________________________________________. The market is initially

in _________________, where ____=____, and

___________________________________________________________. The price-taking firm aims to

______________________________ where ____=____, producing __________________ ___________________. At

quantity q, AR is ___________ than AC, so the firm makes _______________ of the area _________. As firms in the

industry are making a loss, firms will decide to _______________ the industry, as it has been assumed that

________________________________________________________________. This causes _____ to shift to the

___________ to ______. The market reaches a new equilibrium where ___________________________________

_________________________________. The profit-maximising firm now produces where

________________________ ________________________________________. At quantity q1,

___________________________________________ ________________________.

IMPORTANT OUTCOME: PERFECTLY COMPETITIVE FIRMS ALWAYS MAKE ____________________ IN THE LONG-RUN