1. An entrepreneur's utopia?
Perfect Competition
An entrepreneur's utopia?

2. Characteristics Infinite Number of Competitors Homogenous Good/Service
Price Takers- Why?
Full Information to Buyers and Sellers
No Barriers to entry or exit

3. Demand Curve Industry Equilibrium is price that must be taken
Firm’s Demand Curve is perfectly elastic

4. Competitive Price Determination
Industry curves include summations of supply and demand
Pre -established through interaction with buyers and sellers
Producers take price which maximizes profits
Short run may yield economic profits or losses

5. Short Run Economic Profits

6. How much should a perfect competitor produce?
Profit Maximization or Loss Minimization
Profits are maximized when MR=MC
TR= TC
P= Minimum ATC: Productively Efficient
P= MC: Allocative Efficiency
What if?

7. When should firms in a perfectly competitive market expand their output?

8. SR Economic Losses

9. Short Run Shutdown Price
As long as price> AVC per unit firm will at least cover fixed costs (opp. cost of investment)
Break even and short run shut down price
Individual firm’s supply curve is the MC at and above the AVC

10. Long-Run Equilibrium Short- Run profits inspire entry to into industry
Short- Run losses inspire exit from industry
If P>MC then too little is being produced- Underallocation
If P<MC then too much is being produced- Overallocation
Both situations are a type of market failure

11. What does zero economic profits mean?
Accounting v Economic Profits
Reward to investors includes opportunity costs
Implicit and Explicit Costs
Is accounting more important than economics for a small business?