Perfect competition is a market structure with many firms selling identical products, no firm having market power, and free market entry and exit. Each firm's demand curve is perfectly elastic (horizontal), meaning it can sell any quantity at the market price but cannot set prices. Cost curves include the average cost (AC), marginal cost (MC), and average variable cost (AVC). Profit maximization occurs when marginal cost (MC) equals marginal revenue (MR), which is also the market price. The shutdown point occurs when price falls to the minimum of the AVC curve, meaning the firm can no longer cover its variable costs and should temporarily stop production to minimize losses. If the price covers AVC but not total average cost (AC), the firm continues producing in the short run but incurs losses. At the break-even point, price equals AC, leading to zero economic profit.
#economics #upsc #marketstructure
13 окт 2024