Figure 2.2
This image was copied from http://centralecon.wikia.com/wiki/Perfect_Competition
A firm in a perfect compaction market can have the three short-run profit outcomes. The firm can try to maximise its profit, and produce at quantity at which marginal cost (MC) = to marginal revenues (MR). As the firm is a price taker, and the market force of demand and supply has set the price. (1) The firm can break even; this occur when the average total cost (ATC) curve interests with MR curve at is lowest point and earn a normal profit, see figure 2.1 diagram above; (2) Where the ATC curves lies below of the MR curve, the firm can earn an “abnormal profit”, the area of which is highlight by yellow in diagram in figure 2.2 represent this abnormal profits; and (3) where the lowest point of the ATC curve is above the MR curve, the firm will make loss, see figure 2.3 below.
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