Perfect Competition Market Price Discovery #1 Perfect Competition

P=MR=AR Remember the firm’s supply curve? Remember the firm’s supply curve? Page 102 in booklet

Firm’s supply curve starts at shut down level of output Firm’s supply curve starts at shut down level of output P=MR=AR Page 102 in booklet

Profit maximizing firm will desire to produce where MC=MR Profit maximizing firm will desire to produce where MC=MR P=MR=AR Page 102 in booklet

Economic losses will occur beyond output O MAX, where MC > MR Economic losses will occur beyond output O MAX, where MC > MR P=MR=AR Page 102 in booklet

Firm is a “Price Taker” Under Perfect Competition Price Quantity D S PEPE QEQE Price O MAX AVCMC The Market The Firm

If Demand Increases…… Price Quantity D S PEPE QEQE Price AVCMC The Market The Firm D1D1

If Demand Decreases…… Price Quantity D S PEPE QEQE Price AVCMC The Market The Firm 9 10 D2D2

Firm is a “Price Taker” in the Input Market Price Quantity D S WEWE QEQE Price L MAX MVP MIC Labor Market The Firm

Price Quantity D S WEWE QEQE Price L MAX MVP MIC Labor Market The Firm If Demand Increases……