MODULE 59

Graphing Perfect Competition

In this Module, you will learn to:

• Evaluate a perfectly competitive firm’s situation using a graph

• Determine a perfectly competitive firm’s profit or loss

• Explain how a firm decides whether to produce or shut down in the short run

We have just learned that for a perfectly competitive firm, a comparison of the market price to the firm’s average total cost determines whether the firm is earning a profit, taking a loss, or breaking even with a normal profit of zero. Now we can evaluate the profitability of perfectly competitive firms in a variety of situations.