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How do you graph a perfectly competitive firm with economic losses?

Posted on April 16, 2014 at 7:40 PM

When graphing perfect competition, it is a good idea to graph the market and firm side-by-side so that the market equilibrium is lined up with the firm's horizontal marginal revenue curve. The market (or industry) graph is a simple supply and demand graph. For the firm, the price equals the marginal revenue equals the marginal cost output point must be less than the average total cost curve. The price must exceed the average variable cost curve.

 

In the long run, the least efficient firms will exit the market (supply shifts left) causing the price to increase and the individual firm to break even (AKA normal profit AKA long run equilibrium AKA zero economic profit)

 

This No Bull Review video shows you how to draw correctly labeled short-run loss graphs for perfect competition.

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AP Microeconomics Unit 2 Product Markets

Categories: AP Microeconomics, Micro Unit 2 Product Markets

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