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Perfect and Imperfect Competition (Four types of market structures),…

- - - - MR and AV for a purely competitive firm coincide with the firm’s demand curve
        TR rises by product price for each additional unit- straight line that slopes upwards to the right
        In a pure competition, price equals marginal revenue
  - - - Using the MR = MC rule
        • MR and MC will be precisely equal to a fractional level of output
        • The rule applies only if producing is preferable to shutting down
        • The rule is an accurate guide to profit maximization for all firms
        • The rule can be restated as P=MC when applied to a purely competitive firm
      - The firm considers three questions:
        •Should the firm produce?
        •If so, what amount?
        •What economic profit (loss) will be realized?
      - Loss Minimising Case
        Still produce because MR > minimum AVC
        Losses at a minimum where MR = MC
        Producing adds more to revenue than to costs
      - Short Run Supply
        Short run supply curve
        As long as P exceeds min. AVC
        Firm continues to produce using the MR (= P) = MC rule
        Supply graphs as upsloping line
      - Shutdown Case
        if P< minimum AVC, the firm minimizes loss by shutting down
    - - The competitive producer will wish to produce at the output level where total revenue exceeds total cost by the greatest amount
      - Break-even point:TR=TC
        TR covers all costs (including normal profit) but there is no economic profit
        Total cost increases with output because more production requires more resources