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Perfect Competition: Mateo Rivas (Costs/Revenue Aspects (Breaking Even:…
Perfect Competition: Mateo Rivas
Examples
Agricultural Markets
Farmer Markets
Limitations
There are no incentives for the producers/firms to produce
Is only achievable in the long run
Limited Consumer Choice
Costs/Revenue Aspects
Breaking Even: Marginal Cost = Average Total Cost
Normal Profit: Average Total Cost = Marginal Cost
Supernormal Profit: Marginal Cost is greater than Average Total Cost
Sunk Cost: a cost that cannot be recovered and has already been paid for
Profit Maximization: occurs at the quantity where marginal revenue equals marginal cost
Shutting Down: when price is lower than Average Variable Cost
Assumptions
Large Number of Firms
Perfect Information
Free entry and exit
All firms produce identical products