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Perfect Competition (Assumptions (Identical products, Many firms, Free…
Perfect Competition
Assumptions
Identical products
Many firms
Free entry/exit
Perfect Information
Limits of Perfect Competition
We do not have many if any IRL examples
We do not obey the theories
There are entry fees in some form for most industries as well as variation in supplies
Profit Maximization
MR >= MC
Profit = TR - TC
if P = ATC you get normal profit
If P < ATC you make a loss
If P > ATC you get Supernormal profit
Loss comes from price being below ATC
Sunk Costs
Costs that have already been paid and should not be considered
structures, prepaid costs, tickets, lead to more costs
