There are many firms in a P.C. Market.

  • Very low barriers to trade
  • All products are homengenous.

  • 1). allocative efficiency: marginal cost = marginal revenue
  • 2). productive efficiency: ATC min.
  • 3). Profit Max
  • 4). The shaded area is the loss and the gain is the unshaded.

Perfectly Competitive Market

Perfectly Competitive Market

  • In this case, we see that perfect competion is far more efficent than a monoply.
  • In the long run equilibrium we would have P = Q = AR = MR = D = AC = MC
  • This is when PCc market are behaving allocative and productive efficently.
  • In addition, something to note is that the MC curve is the firm's supply curve . In the short run, this extends down towards the AVC curv. In the short run, mostly all firms would stay in business as long as they are making enough to cover varibale costs. Even if it's not making any profit and they sit at 0 = profit. However, it is important to note that in the long run firms likes to stay only if their average cost are covered.

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