Question 8[5]

Perfect competition occurs when none of the individual market participants (buyers and sellers) can influence the price of the product. Under perfect competition, marginal revenue (MR) and average revenue (AR) are thus both equal to the market price.

The situation in which a firm makes an economic profit is identified as one of the possible short-run positions of a firm under perfect competition.Illustrate the given short-run position and explain the situation with reference to your graph.