What traumatic event does Zitkala-Sa describe at the school?

The forcible cutting of her long hair

Why was the cutting of her hair so humiliating to Zitkala-Sa?

Among her people, shingled hair was worn by cowards and mourners

Why is the demand curve facing a competitive firm perfectly elastic?

Because the firm can sell any quantity at the market price but nothing above it, so its demand curve is a horizontal line at that price.

Why does \(AR=MR=p\) for a price-taking firm?

Since price is constant, revenue per unit (AR) equals price, and each extra unit adds exactly the price to revenue, so MR also equals price.

State the conditions for profit maximisation in the short run.

Price equals marginal cost, marginal cost is non-decreasing at that output, and price is greater than or equal to AVC.

What is the short-run supply curve of a firm?

The rising portion of the SMC curve from and above the minimum AVC, together with zero output for prices below minimum AVC.

What is the shut-down point?

The minimum point of the AVC curve, below which the firm stops producing in the short run because price cannot cover variable costs.

Distinguish between normal profit and super-normal profit.

Normal profit is the minimum return needed to keep a firm in business (part of cost); super-normal profit is any profit earned over and above this.

How does the imposition of a unit tax affect a firm’s supply curve?

It raises marginal and average cost by the tax amount, shifting the supply curve to the left, so less is supplied at each price.

How is the market supply curve obtained?

By the horizontal summation of the supply curves of all individual firms in the market at each price.

How does technological progress affect a firm’s supply curve?

It lowers marginal cost at every output level, shifting the supply curve to the right, so the firm supplies more at each price.

The Theory of the Firm under Perfect Competition

Q: What are the defining features of a perfectly competitive market?

Many buyers and sellers, a homogeneous product, free entry and exit, and perfect information — leading to price-taking behaviour.

Class 12 Economics · Introductory Microeconomics · Chapter 4

163 members in the CBSE community

View all

CBSE Class 12 · Economics

Macro marks by unit: Ch 4 leads with 12

Marks booster + cheatsheet: key concepts in 2 lines each
10 marks: National Income Accounting
3 methods for GDP, with identities
M1–M4 and credit creation, Ch 3
Every deficit measure of the budget, Ch 5
6 chapters: every formula, board numerical

Page 1 free about 8 min read, Full kit about 55 min read

₹159See the full kit

CBSE Class 12 · EconomicsTrending

Unit 7 (Ch 4–7) carries 20 marks

Marks booster + cheatsheet: key concepts in 2 lines each, common traps
12 marks: Unit 6, Ch 1–3
8 marks: Unit 8, India-China-Pakistan
Every committee, policy and date, by chapter
Data tables with the book's own numbers
Common traps, corrected

Page 1 free about 8 min read, Full kit about 55 min read

₹159See the full kit

View all 46 amazing Marks Booster kits →

Summary

A perfectly competitive market has many buyers and sellers, a homogeneous product, free entry and exit, and perfect information. Its key feature is price-taking behaviour: each firm is too small to influence the price and simply accepts the market price. For such a firm total revenue is \(TR=p\times q\), and because price is fixed, average revenue and marginal revenue both equal price, \(AR=MR=p\); the demand curve facing the firm is a horizontal (perfectly elastic) price line. The firm is a profit maximiser, where profit \(\pi=TR-TC\). Profit is maximised at the output where three conditions hold: price equals marginal cost \(p=MC\), marginal cost is non-decreasing, and price is at least the average variable cost in the short run (or average cost in the long run). From these conditions the firm’s supply curve is derived — it is the rising part of the marginal cost curve above the minimum AVC (short run) or minimum LRAC (long run), with zero output below that. The shut-down point is the minimum of AVC, and the break-even point is where the firm earns only normal profit at the minimum of average cost. Factors such as technological progress, input prices, a unit tax and the number of firms shift the supply curve. The market supply curve is the horizontal sum of individual firms’ supply curves, and the price elasticity of supply, \(e_s=\dfrac{\%\,\Delta Q}{\%\,\Delta P}\), measures how responsive supply is to price.

Key terms

Perfect competition

A market with many firms, a homogeneous product, free entry/exit and perfect information.

Price taker

A firm that accepts the market price because it cannot influence it.

Marginal revenue

The addition to total revenue from selling one more unit; under perfect competition \(MR=AR=p\).

Profit maximisation

Producing where \(p=MC\) with MC non-decreasing and price at least covering AVC (or AC).

Shut-down point

The minimum point of AVC, below which the firm produces zero output in the short run.

Price elasticity of supply

Responsiveness of quantity supplied to price, \(e_s=\dfrac{\%\,\Delta Q}{\%\,\Delta P}\).

Extra questions & answers

Try one from this chapter

A defining feature of perfect competition is:

Flashcards & interactive practice