KRUGMAN'S MICROECONOMICS for AP* Introduction to Perfect Competition Margaret Ray and David Anderson Micro: Econ: Module

What you will learn in this Module : How a price-taking firm determines its profit-maximizing (or loss minimizing) quantity of output. (MR=MC) Then determine, is that quantity profitable?

Indiv Firms are Price Takers-set by market price Qty Market MR DARP MC price qty MR=MC Qty maximizes profit

Perfect Competition Uniqueness P=MR=AR=D Firms are price-takers –price is the same for every quantity Therefore TR increases by the same amt for every qty (in the amt of price) Since TR increases by the same amt for every qty, AR will be equal to price Price can’t change, firm wants to sell as much at that price as possible. Demand is perf elastic QtyPriceTRMRARTCMC 0$8$0 $4- 188$8810$

Profit Maximization in PC The profit maximizing level of output is found where P = MC on the graph.

Calculating Profits (Assume all are economic profits) Can consider Total profit (π= TR – TC) If TR>TC; positive profit If TR < TC; negative profit If TR = TC; breakeven Easier to consdier Profit per unit If P (aka rev per unit) > ATC (aka cost per unit ); positive profit If P < ATC; negative profit If P = ATC breakeven