Perfect Competition - AP Microeconomics

Operate at a loss. Firm covers variable costs but not all fixed costs.

$P = MC$. Resources allocated efficiently when price equals marginal cost.

$AFC = 5$. Average fixed cost equals $\frac{FC}{Q} = \frac{100}{20}$.

MC above AVC. Firm supplies where marginal cost exceeds average variable cost.

$TR = P \times Q$. Revenue equals price times quantity sold.

Maximized. Perfect competition achieves maximum possible consumer welfare.

Supply decreases. Higher costs shift supply curve left, reducing quantity supplied.

Entry of new firms. Profits attract new competitors, increasing market supply.

Zero economic profit. Total revenue exactly equals total costs.

Indifference between operating and shutting down. Firm is exactly at the shutdown point.

Market price increases. Fewer firms producing reduces market supply, raising price.

Firms exit the market. Losses cause firms to leave, reducing market supply.

$P < AVC$. Firm cannot cover variable costs, so it should stop production.

Price increases. Higher demand shifts demand curve right, raising equilibrium price.

Many buyers and sellers. Ensures no single buyer or seller can influence market price.

Long-run equilibrium. Firms earn normal profit when economic profit equals zero.

$TR = P \times Q$. Revenue equals price times quantity sold.

Market sets price; firm accepts it. Firm has no control over price, only quantity decisions.

Perfectly elastic. Firm can sell any quantity at market price.

$MR = MC$. Maximizes profit where additional revenue equals additional cost.

$P = MC$. Resources allocated efficiently when price equals marginal cost.

$AR = 10$. Average revenue calculated as $\frac{TR}{Q} = \frac{500}{50}$.

Economic profit. Firm earns above-normal profits when price exceeds average total cost.

MC above AVC. Firm supplies where marginal cost exceeds average variable cost.

Free entry and exit. No barriers prevent firms from entering or leaving the market.

Shutdown. Firm minimizes losses by ceasing production when price is too low.

$AR = P$. In perfect competition, average revenue equals market price.

$ATC = \frac{TC}{Q}$. Average cost calculated by dividing total cost by quantity.

$P = ATC$. Firm earns exactly normal profit when price equals average total cost.