Professional Documents
Culture Documents
9-Perfect Competition
9-Perfect Competition
9-Perfect Competition
Markets
Copyright2004 South-Western
WHAT IS A COMPETITIVE
MARKET?
A perfectly competitive market has the
following basic characteristics:
Copyright2004 South-Western
P2
MC
ATC
P1
AVC
Q1
Q2
Quantity
Copyright 2004 South-Western
Costs
If P > ATC, the firm
will continue to
produce at a profit.
Firms short-run
supply curve
MC
ATC
If P > AVC, firm will
continue to produce
in the short run.
AVC
Firm
shuts
down if
P < AVC
0
Quantity
Costs
Firms long-run
supply curve
Firm
enters if
P > ATC
MC = long-run S
ATC
Firm
exits if
P < ATC
Quantity
ATC
Profit
P
ATC
P = AR = MR
Quantity
Q
(profit-maximizing quantity)
Copyright 2004 South-Western
MC
ATC
ATC
P
P = AR = MR
Loss
Q
(loss-minimizing quantity)
Quantity
Copyright 2004 South-Western
Price
MC
Supply
$2.00
$2.00
1.00
1.00
100
200
Quantity (firm)
100,000
Price
MC
ATC
P = minimum
ATC
Supply
Quantity (firm)
Quantity (market)
Firm
Price
Price
MC
ATC
Short-run supply, S1
A
P1
Long-run
supply
P1
Demand, D1
0
Quantity (firm)
Q1
Quantity (market)
Firm
Price
Price
Profit
MC
ATC
P2
P2
S1
P1
P1
D2
Long-run
supply
D1
0
Quantity (firm)
Q1
Q2
Quantity (market)
Firm
Price
Price
MC
ATC
P2
S1
S2
C
P1
Long-run
supply
P1
D2
D1
Quantity (firm)
Q1
Q2
Q3 Quantity (market)