Consider a perfectly competitive market for shirts. The following graph shows the daily cost...


Consider a perfectly competitive market for shirts. The following graph shows the daily cost curves of a firm operating in this market. In the short run, at a market price of $18 per shirt, the firm will choose to produce _____ shirts per day. What is the firms economic profit or loss? Complete the following table.


PriceQuantityTotal RevenueFixed CostVariable CostProfits
6.00 108,000
12.00 108,000
18.00 108,000

If the firm shuts down, it must incur its fixed costs (FC) in the short run. In this case, the firms fixed cost is $108,000 per day. In other words, if it shuts down, the firm would suffer losses of $108,000 per day until its fixed costs end (such as the expiration of a building lease).

The firms shutdown price--that is, the price below which it is optimal for the firm to shut down--Is _____ per shirt?

Perfect Competition:

Perfect competition is a market situation where the number of consumers and producers are numerous or well informed to the extent that there are no possibilities for a monopoly and the price of the good or service is beyond the control of the producers and consumers.

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At a market price of $18 the firm will produce 36,000 shirts because this is where price equals marginal cost. At a price of $6 the quantity produced...

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Perfect Competition: Definition, Characteristics & Examples


Chapter 3 / Lesson 62

Learn the definition, characteristics, and benefits of perfect competition. Review real-life examples of perfect competition between different companies.

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