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Perfect Competition Mind Map (Limitations of Perfect Competiton (any firm…
Perfect Competition Mind Map
Assumptions
Large number of firms
Free Entry and Exit
Perfect Information
All firms produce identical products
Examples
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
Limitations of Perfect Competiton
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
Profit Maximization
Uses marginal revenue and marginal cost to maximize profit or minimize loss
compare the avg. revenue with the avg tot. cost to determine the amount of profit or loss
Profit/Q= TR/Q - TC/Q
profit= price-ATC
loss= ATC- price
P>ACT= supernormal profit
P=ATC= normal profit
P<ATC=loss
Breaking even- when marginal cost is equal to marginal revenue
finding output level where MR=MC
MC curve- the firms supply curve