1. CHARACTERISTICS
   1. MANY firms
      1. SMALL production SCALE
      2. LARGE NUMBER of sellers
   2. HOMOGENOUS
      1. identical products
   3. LOW level of entry
   4. WELL AWARED market knowledge (price & quantity)
      1. KNOWED by consumer/producers
   5. PERFECT mobility of FoP
      1. labour
      2. capitial
   6. PRICE TAKER
      1. prices increases
         1. no customers
         2. switch to competitors
2. DEMAND
   1. PRICE TAKER
   2. relatively INELASTIC
   3. GnS can be perfectly substituted by competitors
   4. downward sloping
   5. the MARKET itself is not replacable
3. PROFIT MAXIMISATION
   1. CONDITION
      1. MR = MC = P
         1. the VALUE of an additional unit of output = product COST of that unit
         2. P = MR becuz in a PERFECT COMPETITION MARKET
      2. MR > MC
         1. produce one more unit
            1. make less profit
      3. MR < MC
         1. LOSS
      4. short run
         1. P >= AVC
      5. long run
         1. P >= ATC
      6. marginal revenue
      7. under perfect competition, for any given firm P = D = AR = MR
      8. Firm can only increase revenue by selling more (Q)
   2. above P3
      1. economic profit
   3. at P3
      1. break-even
      2. earning “normal profit”
   4. P3 -> P1
      1. SUFFURS LOSS
         1. fixed costs incurred
      2. AVC is still covered, only have to pay for FIXED COST
      3. should continue to operate
         1. as long as P > AVC
         2. LOSS < VARIABLE COST (labour)
         3. continue production to minimize loss.
   5. P1
      1. SHUTDOWN-POINT
   6. below P1
      1. cease production
4. SHORT RUN SUPPLY CURVE
   1. illustration
      1. INDIVIDUAL FIRMS
         1. MC above AVC
      2. MARKET
         1. horizontal sum of INDIVIDUAL FIRMS' supply curve
5. LONG RUN EQUILIBRIUM
   1. Key characteristics of PC
      1. MASS sellers & buyers
      2. identical products
      3. freedom of entry & exit
   2. process
      1. firms make supernormal profits
         1. new firms enter the industry
            1. shift D to the right
      2. some firms make losses
         1. leave the industry
            1. shift D to the left
      3. stable at P min clost to ATC
   3. CONCLUSION
      1. earn no ECONOMIC PROFITs in the long run
6. EFFICIENCY & PC
   1. PRICE of X
      1. represent
         1. relative worth of product X to the society
         2. marginal benefit consumer gained from additional X consumed
   2. MARGINAL COST of X
      1. Rs for other goods FORGONE to produce additional X
         1. does not hv anything to do with marginal cost
   3. ALLOCATIVE EFFICIENCY
      1. every GnS
         1. produced up to a point, where additional unit
            1. marginal benefit = MC
      2. Rs allocated among firms
      3. outcomes
         1. P > MC
            1. Rs: under-allocated
         2. P = MC
            1. Rs best utilised
            2. Firms produce the most desirable mix.
            3. hence achieve allocative efficiency
         3. P < MC
            1. Rs over allocated
      4. TOTAL ECONOMIC SURPLUS MAXIMISED
   4. PRODUCTIVE EFFICIENCY
      1. GnS produced at
         1. lowest cost
         2. least amount of Rs
         3. MINIMISE COST
            1. INCREASE PRODUCTIVITY