Perfect Competition

Econ by Dummies

Perfect competition is a type of market structure in which there are many producers all selling the same product. There are no barriers to entry, and producers are constantly entering and leaving the market. Though there are few examples of perfect competition in the United States, some examples include hotdog stands, italian ice stands and pretzel stands.

If price falls below the minimum AVC the firm will shut down to minimize its loses. No output level will reap profits in the short run.

Short Run Shutdown

The firm produces where MR=MC. Price and demand exceed ATC so an economic profit is realized.

Short Run Profit-Maximization

A firm will break even when total revenue equals total cost.

Short Run Break Even

P=MC=Minimum ATC. When P=minimum ATC the firm is producing at productive efficiency. P=MC means the firm is producing at allocative efficiency.

Long Run

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By Chantel McCain, Ross McFarland, Iz Altman