AP Economics Mr. Bernstein Module 58: Introduction to Perfect Competition November 2015

AP Economics Mr. Bernstein Perfect Competition Of the four market structures, this is the only one where the firm is a price-taker – they have no control over price The price is set in the market and the firm decides on their optimal level of production 2

AP Economics Mr. Bernstein Profit Maximization in Perfect Competition Optimal Output Rule: MR = MC In this structure, P = MR And MR = AR Profit Maximization is where P = MC 3

AP Economics Mr. Bernstein Profit Maximization in Perfect Competition Optimal Output Rule: MR = MC In this structure, P = MR And MR = AR Profit Maximization is where P = MC Because the firm cannot raise or lower their price, the horizontal line P = MR = AR also serves as the demand curve (a perfectly elastic one…) Again, Profit Maximization is where P = MC 4

AP Economics Mr. Bernstein Profit Maximization in Perfect Competition 5

AP Economics Mr. Bernstein Calculating Profits Total Profits  = TR – TC If TR > TC, profits are positive If TR < TC, profits are negative Profit Per Unit If P > AC, profits per unit are positive If P < AC, profits per unit are negative 6