Perfect Competition

Characteristics Large numbers MR=AR Homogeneous firms (can relax) Price taker MR=AR Homogeneous firms (can relax) Free Entry and Exit

What is Free Entry Not Necessarily Without Cost Standards might still be Free Entry Licenses that impose costs are not free Usually the restrictor is government Government might prevent exit (airlines)

The Representative Firm Because all firms are the same it is only necessary to describe one of them A set of cost curves describes the firm Firms are added together to get the industry

Adjustment in the Short Run The level of output The supply curve Profit & Losses The shutdown decision

AJUSTMENT IN THE LONG RUN Constant costs Increasing costs Decreasing costs

COMPETITIVE EQUILIBRIUM What's so great about perfect competition

ECONOMIC RENT IN PERFECT COMPETITION Representative firms and rent Differential rent theory