highest or, if profits are not possible, where losses are lowest.

In the long run, positive economic profits will attract competition as other firms enter the market. Economic

losses will cause firms to exit the market. Ultimately, perfectly competitive markets will attain long-run

equilibriumwhen no new firms want to enter the market and existing firms do not want to leave the market, as

economic profits have been driven down to zero.

8.2 How Perfectly Competitive Firms Make Output Decisions

LEARNING OBJECTIVES

By the end of this section, you will be able to:

• Calculate profits by comparing total revenue and total cost

•

Identify profits and losses with the average cost curve

• Explain the shutdown point

• Determine the price at which a firm should continue producing in the short run

A perfectly competitive firm has only one major decision to make—namely, what quantity to produce. To
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