In a perfectly competitive market, there are many small firms producing identical goods with easy entry and exit. Each firm is a price taker, unable to influence the market price. In the short run, a firm will operate at the quantity where marginal revenue equals marginal cost to maximize profits. This can result in either economic profits or losses. In the long run, if there are economic profits, more firms will enter the market, driving the price down until profits reach zero. If there are economic losses, firms will exit until the price rises and losses become zero, reaching long run equilibrium with normal profits.

7. Market for syrup (all firms) P Q (cans/day) D S $8 100

8. Firm’s demand, cost curve $8 D = MR = P P Q (cans/day) MC 10

13. $8 D = MR = P P Q (cans/day) MC 10 ATC $5 economic profit

15. $3 D = MR = P P Q (cans/day) MC 7 ATC $5 economic loss

18. market for syrup P Q (cans/day) D S $8 100 S’ $5 120

19. Syrup firm D = MR = P P Q (cans/day) MC ATC $5 zero economic profit

21. market for syrup P Q (cans/day) D S $5 120 $3 140 S’’

22. $3 D = MR = P P Q (cans/day) MC 7 ATC $5 economic loss

23. Syrup firm D = MR = P P Q (cans/day) MC ATC $5 zero economic profit