Presentation #9:  Perfect Competition
                         Perfect 
                        Competition 
                       explained in 4 ½ 
                         minutes 
                         Long Run 
                         Perfect 
                        Competition 
                        explained in 
                         2 minutes
    Shutting Down or Exiting Industry in Perfectly 
     Competitive Markets explained in 7 minutes
         Market Characteristics
      Market characteristics of FIRMS:
          – # of Firms                                     These 4 
          – Type of Product                                Determine degree 
          – Ease of entering orexiting industry            of price control
          – Amount of Information
        Characteristics of Perfect Competition:
              Perfect      Monopolistic      Oligopoly
           Competition     Competition                       Monopoly
                                        Imperfect Competition
 Examples: Corn, Milk, other “commodities”
                             Many small firms
               Identical products (perfect substitutes)
     Low Barriers - Easy for firms to enter and exit the industry
                     Seller has no need to advertise 
                        Firms are “Price Takers” 
                Each firm has NO control over price. 
      Industry & Firm in Long Run Equilibrium 
                                 “Side by Side” Graph of perfect competition
                    Entire Industry               Long Run Equilibrium
                                                  Economic Profit = Zero           Individual Firm
                                                  Price = Min. of ATC
      Price                  T-Shirts                S         Price                      T-Shirts
                                                       1
                                                                                                          MC
                                                                                                               ATC
                                                                                                               D = MR
        $10 ----------------------    E1                          $10                          --------E1  AVC 1 
                                  ---           D                                              ---
                                  -                1
                                  -                                                            --
                                  Q                                                           Q
                                    1                Qty                                         1             Qty
            Individual firms can sell all of their production at the current Market Price  
                           (Individuals are price takers)… So for a single firm:  
                                             Price = MR = D