Perfect competition, profit

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Colorado State University
Agriculture + Resrce Econ
AREC 202
Christopher Goemans

15 November Perfect competition People are price takers Producers – can’t raise the price Consumers – can’t lower the price Referring to any one individual by producer and consumer Necessary conditions Each producer has a small market share Lots of buyers and sellers Undifferentiated product Milk, wheat, corn, oil Free entry and exit No barriers to entry Where is profit on an individual producer’s graph? How many units will be produced by producer 1? P represents the marginal revenue, amount of money you get for each individual unit produced Where P = MC. If you produce more your costs are greater than your benefits Produce at the quantity where marginal revenue = marginal cost How do we calculate profit? Profit = total revenue – total cost The area under the P curve up till the Q produced is TR Revenue is just gross income ATC x Q = TC The area under the ATC curve (horizontal line from Q on ATC to the axis) up to Q produced is TC Integrals woo. If the market is perfectly competitive, in the long run there will be no economic profit. If there were economic profits, everyone would
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