Video Transcript: Perfect Competition in the Short Run

Hey, welcome back. Okay, in this first video, in the last unit, unit 12, we're going  to discuss perfect competition in the short run. Okay, what is perfect  competition? Right, homogeneous products are all perfect substitutes. Right,  that's perfect competition. That this product is a is a perfect substitute for this  product, right? There's no quality differentiation. All firms have access to factors  of production, the same amount of raw materials, the same equal equal playing  ground, the same type of equipment, the same type of labor. Okay, large  number of buyers and sellers. Right, we have a large audience of consumers to  sell to. Free entry, exit to and from markets. Right, so you can leave and come in that market whenever you please. Right, there's no barriers. Perfectly elastic  demand curve. Right, that means it's in perfect demand. They want this is highly demanded. Okay, perfect knowledge and information that everything is  available. So we're just defining perfect competition here, and profit  maximization that profit is maximized. Price and output and perfect competition.  When drawing perfect competition diagrams. Remember to make a distinction  between the market and a representative individual firm. Okay, so here you'll  see the market supply and demand curve. Here you'll see our equilibrium price.  Here is our output. Okay, here's our demand curve, our supply curve, right? So  here you'll see that revenues, costs, and profits for a competitive firm is here,  right? Each individual firm is a price taker in a perfectly competitive market.  Average revenue equals marginal revenue at every level of output, and we must assume that the aim for each firm is to find a profit-maximizing output, right? So  here you can see that price is in equilibrium, right? So our average revenue  equals marginal revenue, and the costs increase as the price increases. So this  is the shutdown price in the short run. Okay, so price equals the minimum  average variable cost is the shutdown price for a competitive firm in the short  run, right? So the average variable cost, right? The so the minimum that the  base case that we can make for our average cost, right? That anything below  that, we need to be shutting it down. If we are breaking below, if we are if we are below that, or if we are above that, right? Minimum average cost. We if we start  breaking above that minimum average cost line, we need to consider breaking it down, shutting it down, right? So here you can see our average cost, our actual  cost, and then our marginal cost, right? So we break below the average cost,  average variable cost, then we need to continue to we need to or break above  that. We need to shut it down.