Introduction to Perfect Competition in the Short Run
In this chapter, you will be able to:
- give the names and summarize the main characteristics of the four basic market models
- list and describe the conditions required for purely competitive markets
- explain how purely competitive firms can use a total revenue-total cost approach or a marginal revenue-marginal cost approach to finding profit-maximization decisions
- use the marginal revenue-marginal cost approach to answer the competitive firm’s questions of how much to produce
- explain why a competitive firm’s marginal cost curve is the same as its supply curve
Most businesses face two realities: no one is required to buy their products, and even customers who might want those products may buy from other businesses instead. Firms that operate in perfectly competitive markets face this reality. In this chapter, you will learn how such firms make decisions about how much to produce, how much profit they make, whether to stay in business or not, and many others. Industries differ from one another in terms of how many sellers there are in a specific market, how easy or difficult it is for a new firm to enter, and the type of products that they sell. Economists refer to this as an industry’s market structure. In this chapter, we focus on perfect competition. However, in other chapters, we will examine other industry types: Monopoly and Monopolistic Competition and Oligopoly.