Module 8: Perfect Competition
Section outline
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Most businesses face two realities: no one is required to buy their products, and even customers who might want those products may buy from other businesses instead. Firms that operate in perfectly competitive markets face this reality. In this chapter, you will learn how such firms make decisions about how much to produce, how much profit they make, whether to stay in business or not, and many others.
Upon completion of this module, you will be able to:
- Explain the characteristics of a perfectly competitive market
- Discuss how perfectly competitive firms react in the short run and in the long run
- Calculate profits by comparing total revenue and total cost
- Identify profits and losses with the average cost curve
- Explain the shutdown point
- Determine the price at which a firm should continue producing in the short run
- Explain how entry and exit lead to zero profits in the long run
- Discuss the long-run adjustment process
- Apply concepts of productive efficiency and allocative efficiency to perfectly competitive markets
- Compare the model of perfect competition to real-world markets.
To achieve these objectives: [Edit these items to match your resources and activities.]
- Read the Module 8 Introduction
- Read Chapter 8 in the course textbook, Microeconomics.
- Complete Module 8 Discussion.
- Complete Module 8 Quiz.
- Complete the Module 8 Assignment.
- For course instructors, list any other reading assignments here. [Include all reading assignments here that are outside of Moodle. Be as
concise as possible. More information can be included in the
third-party section below, if necessary.]
- Complete the [specific activities in the module. Include all in the order you want them completed.]
Module Pressbooks Resources and Activities
You will find the following resources and activities in this module at the Pressbooks website. Click on the links below to access or complete each item.
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Students mustMark as done
Chapter 8 of Introduction to Microeconomics.
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Students mustMark as done
Module 8 In Class Activity (hide from students)
Course SLO 1: Identify the basic economic principles that serve as the foundation of economic analysis
Course SLO 2: Understand the interaction of supply and demand in determining prices and the role of prices in coordinating economic activity
Course SLO 5: Explain how externalities affect the efficiency of markets, and what can be done to improve the efficiency of markets in which externalities exist
Course SLO 6: Discuss the basic theories behind consumer and producer behavior
Course SLO 7: Analyze the performance of firms under different market structures
Module SLO: 8.2.3 – Explain the shutdown point;
Module SLO: 8.3.1 – Explain how entry and exit lead to zero profits in the long run
Between Section 2 and 3 of the textbook, we see a short-run decision to open or shut down for the day and a long-run decision to enter or exit a market. For this discussion, your task is to:
- Think of an example, either from personal experience or from a business, that demonstrates the decision to shut down, but stay in a market. For example, when might you take a break up not give up on a project entirely
- Explain why either you might choose to stay
home or a business might make the decision not produce in the short-run, yet
stay in the activity or market in the long-run.
Instructor Notes:
A simple example to illustrate this is the decision to call in sick from work. I may call in because I do not feel well that day, and I would rather stay home than retain my sick day or get paid for the day, but just because I call in sick does not mean I quit my job. Same thing with firms - they may have a day where they are better off to close for the day, but not close business for good.
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