Perfect Competition Mind Map

Assumptions

Examples

Limitations of Perfect Competiton

Profit Maximization

Large number of firms

All firms produce identical products

Free Entry and Exit

Perfect Information

Uses marginal revenue and marginal cost to maximize profit or minimize loss

Breaking even- when marginal cost is equal to marginal revenue

compare the avg. revenue with the avg tot. cost to determine the amount of profit or loss

finding output level where MR=MC

Profit/Q= TR/Q - TC/Q

P>ACT= supernormal profit

P=ATC= normal profit

P<ATC=loss

profit= price-ATC

loss= ATC- price

MC curve- the firms supply curve

any firm can enter the market which is bad for older firms because they will lose market shares to the new firms

all the assumptions are not applicable in real life

no incentive for innovation because profit is fixed

limits consumer choice because of standardized production

Agricultural markets are close to P.C because at a farmer's market there are lots of vendors selling the same things, in the same place, at generally the same price points