MyEconLab Concept Video
A firm’s objective is to maximize its economic profit, which is equal to total revenue minus the total cost of production. Normal profit, the return that the firm’s entrepreneur can obtain on average, is part of the firm’s cost.
In the short run, a firm achieves its objective by deciding the quantity to produce. This quantity influences the firm’s total revenue, total cost, and economic profit. In the long run, a firm achieves its objective by deciding whether to enter or exit a market.
These are the key decisions that a firm in perfect competition makes. Such a firm does not choose the price at which to sell its output. The firm in perfect competition is a price taker—it cannot ...