We calculate this as:
196 8 • Perfect Competition

Or, we can calculate it as:

Now consider Figure 8.5 (b), where the price has fallen to $2.75 for a pack of frozen raspberries. Again, the

perfectly competitive firm will choose the level of output where Price = MR = MC, but in this case, the quantity

produced will be 75. At this price and output level, where the marginal cost curve is crossing the average cost

curve, the price the firm receives is exactly equal to its average cost of production. We call this the break even

point.

The farm’s total revenue at this price will be shown by the large shaded rectangle from the origin over to a

quantity of 75 packs (the base) up to point E (the height), over to the price of $2.75, and back to the origin. The

height of the average cost curve at Q = 75, i.e. point E, shows the average cost of producing this quantity. Total
costs will be the quantity of 75 times the average cost of $2.75, which is shown by the area of the rectangle
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