Week 10 — Perfect Competition

Why this matters

An egg farmer at a crowded market and a small furniture maker selling look-alike chairs both take the going price and must decide how much to make and whether to open.

In plain language

This week the chair workshop from last week meets a market price it cannot change. You will learn what makes a market perfectly competitive (many sellers offering the same product, so no one seller can move the price) and why each firm in it is a price taker (a seller that takes the going price as given). You will use one rule to decide how many chairs to make, read the day's profit or loss as a rectangle on a graph, and find the shutdown price (the price below which closing for the day loses less than staying open). Last, you will see why new firms entering a profitable market, and losing firms leaving, push profit toward zero over time, and why zero profit in this sense does not mean the owner earns nothing.

• Already covered: Week 9 built the chair workshop's costs and split accounting from economic profit.
• This week: price takers, P = MC, profit and loss, shutdown, and the long run.
• How they connect: a market price meets Week 9's cost table.
• Where we're going next: Week 11 turns to a seller with no close rivals.

Focus

When the market sets the price, how many units should a firm make, and when should it close?

By the end of this module, you should be able to:

• [ ] choose a price taker's output with P = MC
• [ ] compute profit or loss at a given price
• [ ] apply the shutdown rule with average variable cost
• [ ] explain how entry and exit push profit to zero

To-do

Plan your week

1. Read Chapter 10 (40–50 minutes), then the lecture and slides.
2. Work the tutorial (60–90 minutes) and practice set (15–25 minutes).
3. Do the Model Workshop (90 minutes), discussion, and assignment.
4. Take the quiz.

This week's checkpoint: at a given price, choose the chairs and say whether to open.

You've got this

Take it in order, and ask your instructor early.

Built with The Course Maker · samples.thecoursemaker.com