9781118041581

Cost and Revenue per Unit

P = $8.00

AC = $6.50

Q = 6 Output (Thousands of Units)

(a) A Competitive Firm’s Optimal Output

Cost and Revenue per Unit

P = $6.00

Q = 5 Output (Thousands of Units)

(b) Long-Run Equilibrium in a Competitive Market

MC

AC

P = MR

P = MR

MC

AC

FIGURE 7.3

Price and Output under

Perfect Competition

In part (a), the firm

produces 6,000 units

(where PMC) and

makes a positive

economic profit. In

part (b), the entry of

new firms has reduced

the price to $6, and the

firmearns zero

economic profit.

Competitive Equilibrium 291

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