Civil Engineering Reference
In-Depth Information
Figure 8.3
Long-run perfectly competitive equilibrium
In the long run, perfectly competitive firms move towards a position at which marginal
revenue equals marginal cost and average total costs. In short, 'where everything is
equal' - represented by point E.
MC
ATC
E
d
d
P
dd = MR = P = AR
O
Q
Quantity (units per year)
Key Points 8.2
❍
Profit is maximised at the rate of output where the positive difference
between total revenue and total costs is greatest.
❍
Using marginal analysis, the profit-maximising firm will produce at a rate
of output at which marginal revenue equals marginal cost.
❍
Profit-maximising rules apply to all types of market structure.
TOWARDS THE NOTION OF AN EFFICIENT INDUSTRY
To consider an entire industry, the cost and revenue schedules of all its constituent
firms need to be aggregated. For an industry with a perfectly competitive market
structure, this is not a problem since the costs and revenue for each firm are
identical. This theoretical extreme will prove relevant when we consider the notions
of efficiency that exist in reality. It should also prove to be useful to those concerned
with the performance of firms in the construction sector. Most firms in construction
do seek to maximise their profits, they often have a large degree of freedom to enter
and exit the various activities, and they rarely set their prices without regard to the
terms expressed by their competitors.
