Instructions

In this module, we have studied Perfect Competition in Chapter 8. In section 8.2 of the text: Shapiro, D., MacDonald, D., Greenlaw, S. A. (2024). Principles of Microeconomics, 3e, there are graphs of market equilibrium (Figure 8.4) and individual firms (Figure 8.5). You should also review the video on Perfect Competition by Jacob Clifford found in the content guide on Perfect Competition.

Answer the following questions for a Perfectly Competitive Market Structure in a Constant Cost Industry:

1. For a Perfectly Competitive Market Structure, draw side by side graphs of the short run:
   • in graph 1, show the market equilibrium for rice and
   • in graph 2, show a firm producing rice which is showing a profit.
2. Explain what will happen in the long run if firms are making a profit. Draw side by side graphs for the long run.
   • In graph 1 show how the market supply for rice will respond in the long run when firms are making a profit in the short run.
   • In graph 2, show the long run equilibrium for the firm.
3. Why is a Perfectly Competitive Market structure considered to be productively efficient and allocatively efficient in the long run? (Define productive efficiency and allocative efficiency in your answer).