Introduction to Perfect Competition

What you’ll learn to do: describe the characteristics of perfect competition and calculate costs, including fixed, variable, average, marginal, and total costsImage of a lemonade stand. Stand consists of a wooden booth painted white and yellow stripes. A painted sign says "Lemonade .25 cents". There is a full pitcher of lemonade and red cups.

Imagine the 7-year old you had a lemonade stand. It was one of several on the street. Your neighbor, Julie, also had a lemonade stand and she typically sold her lemonade for 25 cents. You figured that in order to make more money, you would charge 50 cents and steal all her customers. Sadly, everyone bought from Julie and you had no customers at all.

Welcome to the world of perfect competition. You will see in this section that because your lemonade stands were essentially identical, in order to remain in business and make any profit, you needed to be a price-taker instead of a price-maker.