Module
Micro: 22
Econ: 58
Introduction to
Perfect Competition
KRUGMAN'S
MICROECONOMICS for AP*
Margaret Ray and David Anderson
What you will learn
in this Module:
• How a price-taking firm determines its
profit-maximizing quantity of output.
• How to assess whether or not a
competitive firm is profitable.
Profit Maximization in PC
Optimal output rule:
produce the quantity
where MR=MC and
profit will be
maximized!
Production and Profits
• Firms are price-takers
• P = MR
• MR = D = AR
• Profit maximization occurs at the output level
where MC = P
Profit Maximization in PC
The profit
maximizing level of
output is found
where P = MC on
the graph.
Calculating Profits
• Total profit
• π= TR – TC
• If TR>TC; positive profit
• If TR < TC; negative profit
• Profit per unit
• If P > ATC; positive profit
• If P < ATC; negative profit
Table 58.1 Short-Run Costs for Jennifer and Jason’s Farm
Ray and Anderson: Krugman’s Economics for AP, First Edition
Copyright © 2011 by Worth Publishers
Figure 58.1 The Price-Taking Firm’s Profit-Maximizing Quantity of Output
Ray and Anderson: Krugman’s Economics for AP, First Edition
Copyright © 2011 by Worth Publishers
Table 58.2 Short-Run Average Costs for Jennifer and Jason’s Farm
Ray and Anderson: Krugman’s Economics for AP, First Edition
Copyright © 2011 by Worth Publishers
Figure 58.2 Costs and Production in the Short Run
Ray and Anderson: Krugman’s Economics for AP, First Edition
Copyright © 2011 by Worth Publishers