|Home Page Econ 2 Files Econ 2 Lecture Notes Lecture 22: Perfect Competition in the Short Run||| Search|
|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.|
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
A perfect competitive firm faces a perfectly elastic demand curve at the market price.
A perfectly competitive firm can generate profits or losses in the short run.
|David A. Latzko
Business and Economics Division
Pennsylvania State University, York Campus
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