Lecture: Perfect Competition in Microeconomics

Introduction:

• Focus on perfect competition, one of four market structures.
• Key for understanding: characteristics of market structures.
• Perfect competition already analyzed through supply and demand graphs.

Characteristics of Perfect Competition:

• Numerous Small Firms: High competition, low barriers to entry.
• Identical Products: Firms sell commodities (e.g., corn, rice, milk).
• Price Takers: Firms accept market-determined price.
• Example: Thousands of small dairy farmers.

Market and Firm Graphs:

• Side-by-side graphs for market and firms.
• Mr. Darp: Tool for understanding demand and revenue relationships.
  • Marginal Revenue = Demand = Average Revenue = Price.

Calculations:

• Total Revenue (TR): Price x Quantity.
• Total Cost (TC): Average Total Cost (ATC) x Quantity.
• Profit: TR - TC.
• Production occurs where Marginal Revenue (MR) = Marginal Cost (MC).
  • If ATC is above price, results in loss.

Short Run vs. Long Run:

• Short Run: Firm can make profit or loss.
• Long Run: No economic profit due to market adjustments.
  • Entry/exit of firms shifts supply, influencing price.

Efficiency in Perfect Competition:

• Allocative Efficiency: Price equals marginal cost.
• Productive Efficiency: Producing at minimum ATC in the long run.
• No Deadweight Loss: Unlike monopolies.

Skills for Class:

• Proficiency in drawing side-by-side graphs.
• Calculation of TR, TC, and profit.
• Practice through available resources.

Graphical Analysis:

• Profit Scenario: Market entry, supply shifts right, price falls.
• Loss Scenario: Market exit, supply shifts left, price rises.
• Long Run Equilibrium: No economic profit, constant cost industry.

Constant vs. Increasing Cost Industries:

• Constant Cost: Entry/exit doesn’t affect input prices.
• Increasing Cost: Entry raises input prices, affecting costs and equilibrium.

Importance of Perfect Competition:

• Foundation for understanding other market structures.
• Mr. Darp: Visual aid for recalling concepts.

Additional Resources:

• Ultimate review packet with practice video and exams.
• Encouragement to subscribe and engage with added resources.

Conclusion:

• Emphasis on practice and understanding perfect competition.
• Preparation for upcoming units and market structures.

Practice and Quiz:

• Engage with provided materials and test understanding through quizzes.
• Check answers to reinforce learning.