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Quentin Metsys, Moneychanger and his Wife, 1514 Economics 2

Lecture 22: Perfect Competition in the Short Run

characteristics of a perfectly competitive market
demand curve facing a perfect competitor
what does the MR curve look like for a perfect competitor?
profit maximization


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Charcteristics of a Perfectly Competitive Market

  1. many buyers and many sellers
  2. identical product
  3. free entry and exit
  4. perfect information

Demand Curve Facing a Perfect Competitor

The market price in a perfectly competitive market is determined by the market supply and demand curves. An individual firm in that market cannot charge more than the market price and will not charge less. So, the demand curve facing an individual firm is horizontal at the market price, that is, it is perfectly elastic.firm as a price 
taker


What Does the MR Curve look like for a Perfect Competitor?

A firm maximizes profits by producing where MR=MC. For a perfectly competitive firm, the marginal revenue curve is the same as the demand curve.


 Q	P	TR	MR

 0     $1       $0       -
 1	1	 1	$1
 2	1	 2	 1
 3	1	 3	 1
 4	1	 4	 1


Profit Maximization

A perfect competitive firm faces a perfectly elastic demand curve at the market price.

profit maximization

A perfectly competitive firm can generate profits or losses in the short run.

loss minimization

1794 U.S. 
silver dollar David A. Latzko
Business and Economics Division
Pennsylvania State University, York Campus
office: 13 Main Classroom Building
phone: (717) 771-4115
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B.C. 'Victory Decadrachm of Syracuse'