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Figure 9.5 Price, Marginal Revenue, and Demand
A perfectly competitive firm faces a horizontal demand curve at the
market price. Here, radish grower Tony Gortari faces demand
curve d at the market price of $0.40 per pound. He could sell q1or q2—
or any other quantity—at a price of $0.40 per pound.
More generally, we can say that any perfectly competitive firm faces a
horizontal demand curve at the market price. We saw an example of a
horizontal demand curve in the chapter on elasticity. Such a curve is
perfectly elastic, meaning that any quantity is demanded at a given price.
Economic Profit in the Short Run
A firm’s economic profit is the difference between total revenue and total
cost. Recall that total cost is the opportunity cost of producing a certain
good or service. When we speak of economic profit we are speaking of a
firm’s total revenue less the total opportunity cost of its operations.
Attributed to Libby Rittenberg and Timothy Tregarthen
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Saylor.org
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