Perfect competition exists when
 

 13.1   Explain a perfectly competitive firm's profit-maximizing choices and derive its supply curve.

 13.2   Explain how output, price, and profit are determined in the short run.

 13.1   Explain a perfectly competitive firm's profit-maximizing choices and derive its supply curve.

A.  A perfectly competitive firm is a price taker.
B.  Marginal revenue equals price (in perfect competition only).
C.  The firm produces the output at which price equals marginal cost.
D.  If price is less than minimum average variable cost, the firm will temporarily shut down.
E.  A firm's supply curve is the upward-sloping part of its marginal cost curve above minimum average variable cost.

 13.2   Explain how output, price, and profit are determined in the short run.

A.  Market demand and market supply determine price.
B.  Firms choose the quantity to produce that maximizes profit, which is the quantity at which marginal cost equals price (marginal revenue for perfect competition).
C.  In short-run equilibrium, a firm can make an economic profit or incur an economic loss.

Take the optional post-study bonus point quizzes on Perfect Competition on Saturday following Module 7.

Take the optional pre-study bonus point quizzes on Monopoly on Sunday preceding Module 8.

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