Michael Bayes

The key conditions for perfect competition are as follows: 1. There are many buyers and sellers in the market, each of which is “small” relative to the market. 2. Each firm in the market produces a homogeneous (identical) product. 3. Buyers and sellers have perfect information. 4. There are no transaction costs. 5. There is free entry into and exit from the market. in the long run, firms operating in a perfectly competitive market earn zero economic profits. in a perfectly competitive market, the demand curve for an individual firm’s product is simply the market price. To maximize profits in the short run, the manager must take as given the fixed inputs (and thus the fixed costs) and determine how much output to produce given the variable inputs that are within his or her control marginal revenue - The change in revenue attributable to the last unit of output; for a competitive firm, MR is the market price.

the slope of the cost curve at the profit-maximizing level of output (point E) exactly equals the slope of the revenue line.

Since marginal revenue is equal to the market price for a perfectly competitive firm, the manager must equate price with marginal cost to maximize profits.

The second thing to note about long-run competitive equilibrium is that price equals the minimum point on the average cost curve. This implies not only that firms are earning zero economic profits (that is, just covering their opportunity costs) but also that all economies of scale have been exhausted. There is no way to produce the output at a lower average cost of production.

The process just described continues until ultimately the market price is such that all firms in the market earn zero economic profits.

Monopoly refers to a situation where a single firm serves an entire market for a good for which there are no close substitutes.