Losses: Perfect and Imperfect Competition
Market Structures · Micro
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MC
AC
D = AR = MR (perfect competition)
AR = D (imperfect competition)
MR (imperfect competition)
Loss
Demand, MR and MC are unchanged, but average cost is higher still. Price is now below AC at q₁, so the firm makes a loss: (AC − AR) × q₁. The firm still produces where MC = MR, because that output keeps the loss as small as possible.