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Profit-Maximizing Firms in Perfectly Competitive Markets

Understand the concept of profit maximization, total revenue and costs in perfectly competitive markets. Learn about the characteristics of perfect competition and how firms operate in this market structure.

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Profit-Maximizing Firms in Perfectly Competitive Markets

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  1. Profit-Maximizing Firms in Perfectly Competitive Markets • Profit Maximization • Profit • Total Revenue - All Costs (explicit & implicit) • Profit-Maximizing Firms • Goal of the firm is to maximize the difference between total revenues and total costs Chapter 6: Perfectly Competitive Supply

  2. Profit-Maximizing Firms in Perfectly Competitive Markets • The Perfectly Competitive Market • A market in which no individual supplier has significant influence on the market price of the product • A Price Taker • A firm that has no influence over the price at which it sells its product Chapter 6: Perfectly Competitive Supply

  3. Profit-Maximizing Firms in Perfectly Competitive Markets • The Characteristics of Perfect Competition • All firms sell the same standardized product. • The market has many buyers and sellers, each of which buys or sells only a small fraction of the total quantity exchanged. Chapter 6: Perfectly Competitive Supply

  4. Profit-Maximizing Firms in Perfectly Competitive Markets • The Characteristics of Perfect Competition • Productive resources are mobile • Buyers and sellers are well informed. Chapter 6: Perfectly Competitive Supply

  5. S P0 D Q0 The Demand Curve Facing a Perfectly Competitive Firm Market supply and demand Price ($/unit) Market Quantity (units/month) Chapter 6: Perfectly Competitive Supply

  6. P0 Di The Demand Curve Facing a Perfectly Competitive Firm Individual firm demand Price ($/unit) Individual Firm’s Quantity (units/month) Chapter 6: Perfectly Competitive Supply

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