Perfect Competition

How do you determine profit

Profit = TR - TC or (P - ATC)Q

optimal output

where difference of TR-TC is the greatest

How to calculate MR

change in TR/change in Q output

number of sellers and size of firms in PC

Many (1000s) and all same size

type of products in PC

standardized/ homogenous

price making ability of PC

price taker (low market share so 0 impact on price- NO PRICE EFFECT)

Describe entry/exit from a PC industry

very LOW barriers to entry

how is price established in a PC?

set at equilibrium bc PC firms are price takers (ALLOCATIVELY EFFICIENT)

Describe the elasticity of a PC Demand curve

Perfectly elastic (horizontal line)

What line is Price set on (S or D)

DEMAND

What is QD above price line? Below price line?

Above = 0 demand; below = infinite demand

Describe how Total Revenue changes

Total revenue INCREASES at a CONSTANT rate since Price is constant

What is P equal to in PC (what is all the same)

P=MR=D=AR

(Mr. Dar)

What is the profit maximizing output and why

where MR=MC;

not underallocating (forgoing profit) or overallocating (MC outweighs MR) - least costs, most profit

When is a PC firm earning ECONOMIC π

P > ATC or TR > TC

When is a PC firm earning 0 ECONOMIC π

P = ATC or TR = TC

When is a PC firm earning - ECONOMIC π

P < ATC or TR < TC

Where do you shade profit/loss

Find where MR=MC, move up/down to ATC curve, and shade rectangle

What determines profitability condition

MIN of ATC = break even price

What determines Production Condition

MIN of AVC = shut down price

Produce in SR?

P > AVC

Indifferent (shut down or not?)

P = AVC

Shut down in SR (definitive shut down)

P < AVC

What happens to a PC industry when firms eter

supply increases (shifts right), lowering price

What happens when firms exit a PC industry?

Supply decreases (shifts left), increasing price

When are PC firms allocatively efficient? (Demand = MC)

SR and LR

When are PC firms productively efficient? (min of ATC)

LR only

Compare PC profit/loss in the SR vs LR

SR: +π/-π

LR: 0 π

What is P & ATC in the SR vs LR for a PC firm

SR: P>ATC or P<ATC

LR: P=ATC