Microeconomics Chapter 11

• A perfectly competitive market has many buyers and sellers, all firms sell identical
• products, and there are no barriers to new firms entering the market.

A firm that is unable to affect the market price

Because a perfectly competitive firm is a price taker

To maximize profits

... the demand curve intersects the marginal cost curve.

• ... the position of the ATC curve.
• (Price above ATC=Profit)
• (Price below ATC=Loss)

... is the part of the MC curve above the AVC curve.

... is where the total revenue is less than the total variable costs, OR, the price is less than the average variable cost.

• Firms earn a SR profit so other firms enter
• Shifts the market supply curve to the right (lowers prices)
• eliminates the SR profit.

• Firms lose in the SR so other firms exit
• shifts the market supply curve to the left (raises prices)
• eliminates the SR losses.

In the long run, competitive forces drive the market price to the minimum ATC of the typical firm.

Firms produce at the point where the marginal cost of producing another unit equals the marginal benefit consumers receive from consuming that unit.