Microeconomics Perfect competition

Question: Discuss about the Microeconomics Perfect competition. Answer: Profit maximization under perfect competition As per the concept of microeconomics, in order to maximize the profitability under the perfect competition, the apple-manufacturing firm requires to set the price level where marginal revenue is equivalent to the marginal cost. MR is the slope of the marginal revenue curve and this is equivalent to the price level and the demand curve. Under short run, the apple-manufacturing firm would be possible to make economic profits, which would be equal to positive, negative or zero. In this context, it can be mentioned that if the price level is higher than the average total cost, then the firm would incur loss within the industry. Figure 1: Perfect competition under perfect competition (Source: Created by author) From the above figure, it can be mentioned that under short run, the apple-manufacturing firm would make profit where price level such as P is higher than the average cost that is C. Therefore, this is the point which is assumed as the optimal level in case of pick up apples. In addition, it can be mentioned that the area PCBA denotes the supernormal profit and area COQB denotes the area of normal profitability. On the other hand, Koschker and Most (2016) added that under long run, the apple manufacturing firm would make normal profits. Therefore, the supply curve would be shifted to right and the equilibrium price would be decreased. As a result, the economic profitability would be decreased until it becomes zero. As per the statement of Makowski (2014), if there arise any inefficiency within the perfectly competitive market, then the government requires to intervene. Government tries to mitigate the inequalities by imposing taxation or by providing subsidies. As a result, the market will be perfectly allocated. References Koschker, S. and Mst, D., 2016. Perfect competition vs. strategic behaviour models to derive electricity prices and the influence of renewables on market power.OR spectrum,38(3), pp.661-686. Makowski, L., 2014. Perfect Competition, the Profit Criterion, and the Organiza-tion of Economic Activity.Journal of Economic Theory,22, pp.105-25.