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CH/10 : PURE COMPETITION - Coggle Diagram
CH/10 : PURE COMPETITION
CHARACTERISTICS
Very Large Numbers
Standardised product
Price Takers
Free market entry & exit
Perfectly Elastic Demand
Demand Schedule = Ave revenue Schedule
Profit Maximization in Shortrun
TR - TC Approach
MC - MR approach
MR(=P) = MC
Shut down when production when P < Min average variable cost,
Operate rather than shut down when P > average variable cost.
Questions Competative Producer should ask.
Should we produce this product
In what quantities
What economic Profit/loss will be realised
Break Even point
TR covers all costs, implicit and explicit
Firm should produce any any unit of product were MR> MC
Profit = (P-a) x Q