Perfect Competition

As the market ______________ (increases/decreases), all else held constant, a profit-maximizing firm can afford to expand its production.

increases In perfect competition, MR=P, as price rises or falls output can change in the following way. If MR > MC, output increases If MR < MC, output falls

Because the marginal ____________ equals the market ____________ for perfectly competitive firms, they should produce output until the market price equals the marginal cost.

revenue ; price Profit maximizing, perfectly competitive firms produce up to a point where MR = MC. Since, in perfect competition, MR = P, the firm produces at a point where the P = MC.

The demand for a perfectly competitive firm's product is a horizontal line originating at the ______________________

market price

Total profit equals (____________ revenue minus ________________ total cost ) multiplied by output.

Average; average Profit = Total Revenue - Total Cost Average Revenue = (TR/Q) Average Total Cost = (TC/Q) [(TR/Q) - (TC/Q)*Q = TR -TC = Profit

Identify the conditions that guarantee consumers will enjoy the lowest prices possible

Individual firms are price takers. Every firm produces the exact same product.

Economic profit equals

Total revenue minus economic cost. Total revenue minus explicit and implicit costs of production.

a perfectly competitive firm should produce output until

marginal revenue equals marginal cost