perfect competition

• Perfect competition also leads to productive efficiency, where firms operate at the lowest point on the average cost curve and exploit economies of scale.
• Perfect competition leads to allocative efficiency, where price equals marginal cost and resources are allocated according to consumer demand.
• In perfect competition, firms are statically efficient but not dynamically efficient, as they do not have supernormal profits to invest in innovation and technological advancements.
• Perfect competition achieves X efficiency, where firms produce on their average cost curve and minimize waste and cost.
• In the theory of perfect competition, losses are made in the short run to show the adjustment to the long run.
• The market shifts the supply curve to the left to show that some firms will leave the loss-making industry.
• In perfect competition, some firms should stay and continue producing, while others should leave the industry and move their factors of production to other business ventures.
• The decision that minimizes losses in perfect competition is to shut down or continue production.
• If a firm in perfect competition were to shut down, their losses would be the revenue lost minus the fixed costs of production.
• If a firm in perfect competition continued producing, their losses would be the total costs minus the revenue.
• A subnormal profit is made at quantity q1, where average revenue is equal to average cost.
• Perfectly competitive firms are profit maximizers and produce where marginal cost equals marginal revenue, which is represented by the quantity q1.
• A perfectly competitive firm making a loss has a marginal cost curve that cuts both average cost curves at their minimum point.
• A firm should continue producing for a short while if it is making a loss, allowing other firms to leave the industry and prices to rise, converting subnormal profits into normal profit.
• A firm should shut down if it is making a loss and average variable costs are not being covered.
• For a firm in perfect competition, shutting down or continuing production depends on the decision that minimizes losses.
• In the shutdown condition in perfect competition, some firms should continue producing, while others should leave the industry and move their factors of production to other business ventures.
• The decision that minimizes losses in the shutdown condition in perfect competition is to shut down or continue production.
• If a firm in the shutdown condition in perfect competition were to shut down, their losses would be the revenue lost minus the fixed costs of production.
• If a firm in the shutdown condition in perfect competition continued producing, their losses would be the total costs minus the revenue.
• For a firm in the shutdown condition in perfect competition, shutting down or continuing production depends on the decision that minimizes losses.
• The shutdown condition does not imply profit is being made or that normal profit is being made.
• The shutdown condition is where Average Revenue (AR) equals Average Variable Cost (AVC), at which point firms should consider shutting down.
• The break even condition is where Average Revenue (AR) equals Average Cost (AC), indicating normal profit.
• Firm C's losses are 90,000 if it continues production and 100,000 if it shuts down.
• If Firm C shuts down, there will be no revenue coming in and the full fixed cost would have to be paid off.
• Firm C's revenue coming in covers the variable cost of production completely, and the extra revenue on top of the variable cost can be used to run down some of the fixed costs of production.
• If Average Revenue (AR) is less than Average Variable Cost (AVC), then definitely shut down.
• If other firms like Company A leave, the supply curve will shift to the left, pushing the price up and maybe resulting in normal profits for Firm C.
• If the price doesn't increase, Firm C will have to eventually leave the market as losses can't persist forever.
• The shutdown condition is purely to say whether firms in perfect competition should continue producing in the short run if they are making losses or not.
• If Average Revenue (AR) is greater than Average Cost (AC), then if a loss is being made, firms should shut down.
• By continuing production, Firm C aims to cover their full variable cost and to run down some of their fixed costs.
• Firm B's losses will be the same regardless of whether it continues production or shuts down.