CONTENTS
INTRODUCTION……………………………………………………………………...3
CHAPTER I Perfect Competition Market……………………………………………..5 1.1. Perfect Competition Market Characteristics ……..………………….5 1.2. Perfect Competition Supply and Demand…………………………...9
CHAPTER II Perfect Competition Short-Run Supply………………………………..13 2.1. Short-Run Production Alternatives of a Competitive Firm………... .13 2.2. Short-Run Equilibrium and Supply Curve ………………………… 23
CHAPTER III Perfect Competition Long-Run Supply………………………………29 3.1. Long-Run Equilibrium Conditions…………………………………..29 3.2. Long-Run Industry Supply Curve…………………………………...33 3.3. Perfect Competition Market Efficiency……………………………...36
CHAPTER IV Practical analysis……………………………………………………..41
CONCLUSIONS……………………………………………………………………...45
LITERATURE………………………………………………………………………...47
APPENDIX…………………………………………………………………………...49

INTRODUCTION
The issue of supply in the perfect competition conditions is a rather complex topic. It comprises of many crucial points that I will try to identify and explain. Some of them will be caused by the perfect competitive conditions’ regulations of the general processes of the supply formation, profit maximization, equilibrium achieving and others, dictated by the characteristics of the perfect competition itself, such as a large number of small firms, identical products sold by all firms, perfect resource mobility or the freedom of entry into and exit out of the industry, and perfect knowledge. It is obvious that when dealing with perfect competition it is market rules instead of the individual or group ones striving to hold the grasp over the economic situation, as it would occur in monopoly, oligopoly or monopolistic competition. Even the British historian Lord Acton once observed, “Power tends to corrupt, absolute power corrupts absolutely”. No wonder why perfect competition may seem so appealing and therefore, the supply in these conditions being rather a transparent process than someone’s urge to obtain enormous profits.
My approach of the given subject by means of division supply into short-term and long-term is motivated by the fact that in the short-run producers can change output by regulating the amount of the factors inputs that they can vary. Whereas in the long-run the firms can adjust a much bigger variety of factors, plant size, the quantity of capital, state of technology, any aspect they can to achieve the primary goal of any firm maximize long-run profit, as well as something they cannot change but cause in the first place, the exit-entrance of new market participants in particular.
As it is an idealistic market structure no wonder that it is not so dominant nowadays, although there are exceptions for instance in agriculture.
Although generally there is some controversy over the perfect competition and debate over its flaws and “bizarre” assumptions, this work is aiming to provide clear enough details of the numerous components in defining the peculiarities and distinguishing features of perfect competitive firm and industry supply comparing to all the rest.
CHAPTER I
PERFECT COMPETITION MARKET
Perfect competition is the perverse theory modern economics has developed in dealing with firms, prices and resource allocation. Competition is normally, and correctly, understood to mean rivalry between firms in attracting consumer patronage. The theory of perfect competition reflects the influence that positivism and mathematics have had on economics.
Perfect competition is one of four common market structures. The other three are: monopoly, oligopoly, and monopolistic competition. The exhibit given below illustrates how these four market structures form a continuum based on the relative degree of market control and the number of competitors in the market. At the far left of the market structure continuum is perfect competition, characterized by many competitors and no market control. 1
Perfect competition is an ideal market structure entailing a large number of small firms, identical products sold by all firms, freedom of entry into and exit out of the industry, and perfect knowledge of prices and technology. Perfect competition is an idealized market structure that is not observed in the real world.
As mentioned perfect competition is a market structure characterized by a large number of firms so small relative to the overall size of the market, such that no single firm can affect the market price or quantity exchanged. Perfectly competitive firms are price takers. They set a production level based on the price determined in the market. If the market price changes, then the firm re-evaluates its production decision. This means that the short-run marginal cost curve of the firm is its short-run supply curve.
In perfect competition, all firms produce the same identical goods, charge the same price for those goods, face a perfectly horizontal demand curve, experience no transaction costs, and buyers and sellers have perfect knowledge. Aside from the appalling lack of reality embodied in this theory--which should alone warrant its discard--the theory is also self-contradictory. A perfectly horizontal demand curve is self-contradictory on the very grounds of its propositions. A perfectly horizontal demand curve depicts ongoing sales at the same price, however to supply that increasing number of sales is to add to total supply, and an increase in total supply depresses prices. A perfectly elastic demand curve is therefore a theoretical impossibility. 12, 273p. But I will get into these and other details later. 1.1. Perfect Competition Characteristics
The four key characteristics of perfect competition are: (1) a large number of small firms, (2) identical products sold by all firms, (3) perfect resource mobility or the freedom of entry into and exit out of the industry, and (4) perfect knowledge of prices and technology. 19, 524
These four characteristics mean that a given perfectly competitive firm is unable to exert any control whatsoever over the market. The large number of small firms, all producing identical products, means that a large (very, very large) number of perfect substitutes exists for the output produced by any given firm.
This makes the demand curve for a perfectly competitive firm's output perfectly elastic. Freedom of entry into and exit out of the industry means that capital and other resources are perfectly mobile and that it is not possible to erect barriers to entry. Perfect knowledge means that all firms operate on the same footing, that buyers know about all possible perfect substitutes for a given good and that firms actually do produce identical products.
Large Number of Small Firms
A perfectly competitive market or industry contains a large number of small firms, each of which is relatively small compared to the overall size of the market. This ensures that no single firm can exert market control over price or quantity. If one firm decides to double its output or stop producing entirely, the market is unaffected. The price does not change and there is no discernible change in the quantity exchanged.
How many firms are needed in a perfectly competitive industry, such that each is so small it has absolute no market control? There is no actual number that answers this question. This is due partly to the fact that perfect competition is an idealized market structure that does not exist in the real world. It is also partly due to the notion that the number of firms is not as important as the result... that no firm has market control.
Here are two extreme examples that will help illuminate this notion. Example 1 is Phil's home grown zucchinis. Phil is one among a really large number of people who grow zucchinis in their backyard gardens. Phil has no control over the zucchini market because the total zucchini market contains so many zucchini producers, each producing only a handful of zucchinis. Should Phil decide to produce more zucchinis, fewer zucchinis, or none at all, the zucchini market and especially the zucchini price are unaffected. Zucchini buyers continue buying zucchinis from the remaining producers as if nothing changed. As far as the market is concerned, nothing has changed.
Example 2 is the innovative folks at Quadra DG Computer Works, which produces the Quadra 400 Data RAM Cartridges (a memory storage cartridge used in the Quadra 400 Data RAM Computer Storage System). In this hypothetical economic world, Quadra DG Computer Works is only one of threes companies that produce computer storage products. Because it holds a market share of 33 percent, Quadra DG has a substantial degree of market control. Should Quadra DG decide to produce more or fewer Quadra 400 Data RAM Cartridges, or stop producing them altogether, then the computer storage market takes notice. The price and quantity exchanged are likely to change.
Identical Goods
Each firm in a perfectly competitive market sells an identical product, which is also commonly termed "homogeneous goods." The essential feature of this characteristic is not so much that the goods themselves are exactly, perfectly the same, but that buyers are unable to discern any difference. In particular, buyers cannot tell which firm produces a given product. There are no brand names or distinguishing features that differentiate products by firm.
This characteristic means that every perfectly competitive firm produces a good that is a perfect substitute for the output of every other firm in the market. As such, no firm can charge a different price than that received by other firms. If they should try to charge a higher price, then buyers would immediately switch to other goods that are perfect substitutes.
Once again, Phil the zucchini grower offers an example. Phil's zucchinis are no different than Becky's zucchinis, which are no different than Dan's zucchinis, which are no different than Alicia's zucchinis, which are no different than any of the other zucchinis produced by any of the other millions of zucchini growers. They look the same. They taste the same. And most important, they satisfy the same zucchini need.
In contrast, the Quadra 400 Data RAM Cartridges used in the Quadra 400 Data RAM Computer Storage System are unique. First of all, Quadra 400 Data RAM Cartridges only work in the Quadra 400 Data RAM Computer Storage System. Second of all, Quadra 400 Data RAM Computer Storage System only uses Quadra 400 Data RAM Cartridges. Third of all, the brand name of Quadra DG Computer Works is printed on each cartridge, signifying whatever quality notion (good or bad) that buyers have for this product. To most buyers, Quadra 400 Data RAM Cartridges are NOT identical to OmniRam computer storage cartridges or MegaMem computer storage cartridges. Each works with a different system, have different uses, and have different quality connotations.
Perfect Resource Mobility
Perfectly competitive firms are free to enter and exit an industry. They are not restricted by government rules and regulations, start-up cost, or other barriers to entry. While some firms incur high start-up cost or need government permits to enter an industry, this is not the case for perfectly competitive firms. Likewise, a perfectly competitive firm is not prevented from leaving an industry as is the case for government-regulated public utilities.
Perfectly competitive firms can acquire whatever labor, capital, and other resources that they need without delay and without restrictions. There is no racial, ethnic, or sexual discrimination.
For example, if Phil wants to leave the zucchini industry and entry the kumquat industry, he can do that without restriction. Likewise if Becky is a kumquat producer who wants to entry the zucchini industry, she can do so without restraint. Phil and Becky are not faced with up-front investment cost nor brand-name recognition that might prevent them from entering a perfectly competitive industry. When they enter an industry they can instantly compete on equal ground with existing firms.
By comparison, when Quadra DG Computer Works entered the market it needed to build several expensive factories, spend millions of advertising dollars to achieve brand name recognition, and obtain several government patents to produce its Quadra 400 Data RAM Cartridges. Additionally, because Quadra 400 Data RAM Cartridges are used in top secret military projects, Quadra DG Computer Works is not allowed to STOP producing Quadra 400 Data RAM Cartridges without authorization from the Secretary of Defense and an act of Congress.
Perfect Knowledge
In perfect competition, buyers are completely aware of sellers' prices, such that one firm cannot sell its good at a higher price than other firms. Each seller also has complete information about the prices charged by other sellers so they do not inadvertently charge less than the going market price. Perfect knowledge also extends to technology. All perfectly competitive firms have access to the same production techniques. No firm can produce its output faster, better, or cheaper because of special knowledge of information.
Phil, for example, has all of the information needed to grow zucchinis. This is the same information possessed by Becky, Dan, Alicia, and the other millions of zucchini producers. Phil also knows that the going price of zucchinis is 50 cents. All of the zucchini buyers know that the going price is fifty cents.
In contrast, Quadra DG Computer Works has several patents on the production of Quadra 400 Data RAM Cartridges that are not available to its competition (OmniRam and MegaMem). Quadra DG also has a secret formula that it uses for production locked away in the company safe. 1 1.2. Perfect Competition Supply and Demand
And now to get more into supply specifically, let’s first state the general meaning of it. Supply is the willingness and ability to sell a range of quantities of a good at a range of prices, during a given time period. Supply is one half of the market exchange process. This supply side of the market draws inspiration from the limited resources dimension of the scarcity problem.
The other side of the market is demand. The demand curve for the output produced by a perfectly competitive firm is perfectly elastic at the going market price. The firm can sell all of the output that it wants at this price because it is a relatively small part of the market. As a price taker, the firm has no ability to charge a higher price and no reason to charge a lower one. The market price facing a perfectly competitive firm is also average revenue and, most important, marginal revenue. 18, 192

Fig. 1.1 The market demand curve 1

Once again I chose the zucchini example of the producer Phil. The graph on the Fig. 1.1. illustrates the overall zucchini market, in particular, the supply offer by millions of zucchini growers and the demand of millions of buyers. The equilibrium price achieved in the zucchini market is $2.50 and the equilibrium quantity is 100 million zucchinis.

Fig. 1.2 An individual demand curve 1

The graph on the Fig. 1.2.illustrates the demand for Phil's zucchinis. Note that even though both sides of this exhibit look to be about the same size, the quantity axes have different measurement units. Whereas the quantity for Phil's zucchinis is in zucchinis, the quantity for the overall zucchini market is in millions of zucchinis.
The key for Phil is that he can produce any quantity of zucchinis that he wants at $2.50, the going market price. Given millions of zucchini buyers, someone is willing and able to buy 5 to 10 zucchinis from Phil at $2.50 each. That makes the horizontal line emerging from the $2.50 price, the demand curve for Phil's zucchinis.
Now let’s return to the supply concept. Supply is a fundamental aspect of market exchanges and economic activity. Supply is based on the ownership and control of the scarce resources (labor, capital, land, and entrepreneurship) which are use to produce the goods and services that satisfy wants and needs.
Three aspects of supply are worthy of further consideration are: Willingness and Ability - supply requires both willingness and ability. While supply can be constrained by the physical ability to sell a good, production cost is often the primary influence on ability. A seller must receive enough revenue to compensate for the cost of production, or there is no supply.
Range of Prices and Quantities - Supply is a range of prices and quantities. It includes not just the quantity sold at the current price, but any and all quantities that would be sold at other prices-higher and lower.
Given Time Period - Supply is identified for a specified time period. The analysis of asparagus supply needs information on the time period.
The specific supply relation between price and quantity is termed the law of supply. The law of supply is the direct relation between supply price and quantity supplied. If, in other words, the supply price increases, then the quantity supplied increases. The law of supply can be attributed to two even more basic laws.
Law of Increasing Opportunity Cost: This is a principle derived from the production possibilities analysis stating that the value of foregone production increases as the quantity of a good produced increases. As such, to produce more of a good, sellers need to receive a higher price to cover the increasing opportunity cost.
Law of Diminishing Marginal Returns: This is a principle of short-run production stating that as more of a variable input is added to a fixed input, then the marginal product of the variable input decreases. The decrease in this marginal product then causes an increase in the marginal cost of production. As such, to produce more of a good, sellers need to receive a higher price to cover the increasing marginal cost. 17,328
Another important aspect to bear in mind is the distinction between Supply and the Quantity Supplied. Supply is the entire set of price-quantity pairs that reflect sellers’ willingness and ability to sell a good. It is the entire supply curve. And therefore, a change in Supply is a change in the overall supply relation. It is caused by a change in one of the five supply determinants and is indicated by a shift of the supply curve.
Quantity Supplied is the specific amount that sellers are willing and able to sell at a specific price. It is indicated as a single point on the supply curve. It is caused by a change in the supply price and is indicated by a movement along the supply curve from one point to another.
Chapter I conclusions:
Perfect competition is an ideal market structure entailing a large number of small firms, identical products sold by all firms, freedom of entry into and exit out of the industry, and perfect knowledge of prices and technology. Perfect competition is an idealized market structure that is not observed in the real world.
The demand curve for the output produced by a perfectly competitive firm is perfectly elastic at the going market price. The firm can sell all of the output that it wants at this price because it is a relatively small part of the market. As a price taker, the firm has no ability to charge a higher price and no reason to charge a lower one. The market price facing a perfectly competitive firm is also average revenue and, most important, marginal revenue.
Supply is based on the ownership and control of the scarce resources (labor, capital, land, and entrepreneurship) which are use to produce the goods and services that satisfy wants and needs. Its three aspects are: willingness and ability, - supply requires both willingness and ability, range of prices and quantities, given time period .

CHAPTER II
PERFECT COMPETITION SHORT-RUN SUPPLY
2.1. Competitive Firm Production Alternatives
The key participants of the perfect competition market are obviously competitive firms. Those that sells their products in the market of perfect competition.
In the conditions of the perfect competition there is no single force that influence the market price of goods, as any of them makes up a very insignificant share of the market. Therefore the firms are price takers.
In the short - run, the firm has one or more fixed factors, and the only way in which it can change its output is by using more or less of the factors inputs that it can vary. Thus the firm’s short-run cost curves are relevant to its decision regarding output. In determining how much output to supply, the firm's objective is to maximize profits subject to two constraints: the consumers' demand for the firm's product and the firm's costs of production. Consumer demand determines the price at which a perfectly competitive firm may sell its output. The costs of production are determined by the technology the firm uses. The firm's economic profits are the difference between its total revenues and total costs.
EP = TR – TC 11,144

Fig. 2.1 Revenue curves for a price-taking firm
This is the graphical representation of the revenue concept. Because price does not change, neither their marginal revenue not average revenue varies with output. When price is constant, total revenue is always an upward-sloping straight line starting from the origin. A firm's total revenue is the dollar amount that the firm earns from sales of its output. If a firm decides to supply the amount Q of output and the price in the perfectly competitive market is P, the firm's total revenue is
TR=P*Q 14,151
A firm's marginal revenue is the dollar amount by which its total revenue changes in response to a 1-unit change in the firm's output. If a firm in a perfectly competitive market increases its output by 1 unit, it increases its total revenue by
P × 1 = P. Hence, in a perfectly competitive market, the firm's marginal revenue is just equal to the market price, P.
MR=P 14,151
It is also the change of total revenue by selling more units of production: 14,151
Average revenue - it proceeds from the sale of unit: . Average revenue equals the market price and the average revenue curve coincides with the curve of demand for the company.
As it is thought of as the main task of the competitive firm, it is important to combine the information about the firm’s costs and revenues to determine the level of output that will maximize its profits. And for this there are two rules that apply to profit-maximizing firms, whether or not they operate in perfectly competitive markets. The first determines whether or not the firm should produce at all, and the second determines how much to produce.
Rule 1. A firm should not produce at all if for all levels of output, the total variable cost of producing that output exceeds the total revenue derived from selling it or, equivalently, if the average variable cost of producing the output exceeds the price at which it can be sold.
TVC > TR ; AVC > P – should not produce 1
The price at which the firm can just cover its average variable cost, and so leaves it indifferent between producing and not producing, is often called the Shut - Down Price.
P = AVC – Shut-Down Price 1
Rule 2 Assuming that it is worthwhile for the firm to produce, the firm should produce the output at which marginal revenue equals its marginal cost. This applies to any profit-making firm in any market structure. However, a firm that is operating in a perfectly competitive market will produce the output that equates its marginal cost of production with the market price of its product (as long as they exceed average variable cost).
Q = MC (P > AVC)
A perfectly competitive firm is presumed to produce the quantity of output that maximizes economic profit. This production decision can be analyzed in three different, but interrelated ways.
14, 151 * Profit: The first is directly through the analysis of economic profit, especially using a profit curve. A perfectly competitive firm is presumed to produce the quantity of output that maximizes economic profit -the difference between total revenue and total cost. This production that traces the level of economic profit for different levels of output. * Total Revenue and Cost: A second is by comparing total revenue and total cost, commonly accomplished with total revenue and total cost curves. * Marginal Revenue and Cost: The third, and perhaps most noted, way is by comparing marginal revenue and marginal cost, similarly achieved with marginal revenue and marginal cost curves. 7, 123
In a perfectly competitive market, each firm is a quantity adjuster. It pursues the goal of profit maximization by increasing or decreasing quantity until it equates its short–run marginal cost with the price of its product that is given to by the market. 12, 204
A firm faces three production options in the short run based on a comparison between price, average total cost, and average variable cost. If price is greater than average total cost, a firm earns an economic profit by producing the quantity that equates marginal revenue with marginal cost. If price is less than average total cost but greater than average variable cost, a firm incurs an economic loss, but produces the quantity that equates marginal revenue with marginal cost. If price is less than average variable cost, a firm shuts down production in the short run, incurring an economic loss equal to total fixed cost. 4, 121
Models of the best efficient choice of firms can be provided in the form of a table, graph or analytical form.

Price and Cost | P>ATC | ATC>P>AVC | P<AVC | Effect | Profit Maximization | Loss Minimization | Stop producing | Result | Produce the quantity that equates MR and MC.MR = MC Generate positive profit. | Produce the quantity that equates MR and MC. Incur economic loss less than fixed cost. | Stop producing in the short run. Incur economic loss equal to fixed cost. |
Tab. 1 Production Alternatives

1) The first alternative listed in the table is profit maximization. The two key criteria are that price is greater than average total cost (P > ATC) and that marginal revenue is equal to marginal cost (MR = MC). Because price (which is also average revenue) is greater than average total cost, total revenue is greater than total cost and Phil earns an economic profit. This economic profit is maximized when Phil's zucchini production equates marginal revenue with marginal cost. Keep in mind that total cost includes a normal profit, meaning that Phil also receives what can be termed above-normal profit. This is the situation desired by all firms. A firm in this situation obviously remains in business, producing the profit-maximizing quantity of output. Graphical illustration of short-run profit maximization of Phil, the zucchini producer by the means of the marginal revenue, marginal cost, and average total cost figures are shown in the graph in Fig. 2.2

Fig. 2.2 Short-run profit maximization, marginal Curves 1
This very same illustration of the profit maximization in the short-run can be given in a table as in the Tab. 2.

Tab. 2 Short-run profit maximization table 1

This table obviously proves the previous graph, and we can once again observe the maximum profit (7) at the quantity of output at the level of 7 pounds of zucchinis.
As already mentioned profit maximization can be also identified by a comparison of total revenue and total cost. The quantity of output that achieves the greatest difference of total revenue over total cost is profit maximization. In the middle panel, the vertical gap between the total revenue and total cost curves is the greatest at 7 pounds of zucchinis. For smaller or larger output levels, the gap is either less or the total cost curve lies above the total revenue curve and therefore the firm is baring losses (TC>TR) 19, 192

Fig. 2.3 Short-run profit maximization, total curves and profit curve 1

The quantity of output in which the total revenue is equal to total cost such that a firm earns exactly a normal profit, but no economic profit. Breakeven output can be identified by the intersection of the total revenue and total cost curves, or by the intersection of the average total cost and average revenue curves. The most straightforward way of noting breakeven output, however, is with the profit curve. For a perfectly competitive firm breakeven output occurs where price is equal to average total cost.

Fig. 2.4 Breakeven output, profit curve 1

Fig. 2.5 Breakeven output, total and average curves 1
So in order to sum up this important aspect, the firm may be earning profits or receiving a zero profit. Fig. 2.6 Profits and zero-profits
The firm is gaining an economic profit:
MR=MC (P>ATC)
The firm receives a zero economic profit:
P = MC = min ATC
2) The second alternative listed in the Tab.1 is loss minimization.
The two key criteria are: * that price is greater than average variable cost but less than average total cost (ATC > P > AVC) * that marginal revenue is equal to marginal cost (MR = MC)
Because price (P=AR) is less than average total cost P < ATC as shown in the Fig.2.8., total revenue is less than total cost and Phil incurs an economic loss.
TR < TC – loss Fig. 2.8 Incurring losses Fig. 2.9 Minimizing losses
However, the key question is whether or not firm should stop producing in the short run or produce zucchinis at the output level that equates marginal revenue and marginal cost even though he is operating at a loss.
In making this determination, the firm will take into account its average variable costs rather than its average total costs. The difference between the firm's average total costs and its average variable costs is its average fixed costs.
AFC = ATC – AVC 1
The firm must pay its fixed costs (for example, its purchases of factory space and equipment), regardless of whether it produces any output. Hence, the firm's fixed costs are considered sunk costs and will not have any bearing on whether the firm decides to shut down. Thus, the firm will focus on its average variable costs in determining whether to shut down.
If the firm's average variable costs are less than its marginal revenue at the profit maximizing level of output, the firm will not shut down in the short-run
AVC < MR – not shut-down in the short-run The firm is better off continuing its operations because it can cover its variable costs and use any remaining revenues to pay off some of its fixed costs. The fact that the firm can pay its variable costs is all that matters because in the short-run, the firm's fixed costs are sunk; the firm must pay its fixed costs regardless of whether or not it decides to shut down. Of course, the firm will not continue to incur losses indefinitely. In the long-run, a firm that is incurring losses will have to either shut down or reduce its fixed costs by changing its fixed factors of production in a manner that makes the firm's operations profitable. 20, 143
3) The third alternative listed in the table is shutdown. The key criterion is that price is less than average variable cost (P < AVC). Because price (which is also average revenue) is less than average variable cost, total revenue is not only less than total cost ( TR < TC; TVC) it is also less than total variable cost.

Fig. 2.10 Shut-down

If the market price (P) is lower than the minimum variable costs (AVS), the company will stop production. Price ceases production:
P = MC = min AVC
A key implication obtained from the short-run analysis of perfect competition is positive relation between price and the quantity of output supplied. In particular, the supply curve for a perfectly competitive firm is positively sloped.
This relation is generated for two reasons:
First, a perfectly competitive firm produces the quantity of output that equates price and marginal cost. P = MC 1
Second, the marginal cost curve, guided by the law of diminishing marginal returns, is positively sloped.
Taken together these two observations indicate that a higher price entices a perfectly competitive firm to increase the quantity of output produced and supplied. In particular, a perfectly competitive firm's marginal cost curve is also its supply curve.
This conclusion, however, only applies to perfect competition. Firms operating in market structures that do not equate price and marginal cost, but rather equate marginal revenue and marginal cost. As such, the marginal cost curve is not the supply curve for the firm.
2.2 Short – Run Equilibrium and Supply Curve
A perfectly competitive firm's supply curve is that portion of its marginal cost curve that lies above the minimum of the average variable cost curve. And as mentioned earlier a perfectly competitive firm maximizes profit by producing the quantity of output that equates price and marginal cost. As such, the firm moves along its positively-sloped marginal cost curve in response to changing prices.
A perfectly competitive firm maximizes profit by producing the quantity of output that equates marginal revenue and marginal cost. In that price equals marginal revenue for a perfectly competitive firm, price is also equal to marginal cost. In other words, the firm produces by moving up and down along its marginal cost curve. The marginal cost curve is thus the perfectly competitive firm's supply curve.
Because the marginal cost curve is positively sloped due to the law of diminishing marginal returns, so too is the firm's supply curve. And because all firms' in a perfectly competitive industry have positively-sloped marginal cost curves, the market supply curve for the entire industry is also positively sloped. This offers a prime explanation for the law of supply.
And now I’ll get more insight into Supply. The analysis of the short-run production decisions for a perfectly competitive firm has direct implications for the market supply curve and the law of supply. The primary conclusion is that a perfectly competitive firm's short-run supply curve is that segment of its marginal cost curve that lies above the average variable cost curve.
A perfectly competitive firm produces the quantity of output that equates marginal revenue, which is equal to price, and marginal cost, as long as price exceeds average variable cost. The profit-maximizing choices of output at alternative prices generates the perfectly competitive firm's short-run supply curve.
It is necessary to consider three key points: * A profit-maximizing firm produces the quantity of output that equates marginal revenue and marginal cost (MR = MC). * A perfectly competitive firm is characterized by the equality between price and marginal revenue (P = MR). * The law of diminishing marginal returns gives the marginal cost curve a positive slope.
Combining all three points means that a profit-maximizing perfectly competitive firm produces the quantity of output that equates price and marginal cost (P = MC), above the level of AVC just like in the Fig.6 9,294

Fig. 2.11 The Short-run Equilibrium of a Competitive Firm [5,204]

When p=MC, as at q2, the firm would decrease its profits if it changed its output. At any point to the left of q2, say q1, price is greater than the marginal cost, and it is worthwhile for the firm to increase output. At any point to the right of q2, say q3, price is less than the marginal cost, and it is worthwhile for the firm to reduce output.
To illustrate it on the example, it’s necessary to consider the production and supply decision made by Phil the zucchini grower, a hypothetical firm. Because Phil is one of millions of zucchini producers, each producing identical products and each with a relatively small part of the overall market, he has no market control. As such, Phil is a price taker. He must react to the price determined by the interaction of market demand and market supply, making adjustments in his own production to accommodate higher or lower market prices.

Fig. 2.12 Short-Run Supply Curve 1

This graph displays Phil's U-shaped cost curves representing his zucchini production. Note that all three curves (average total cost, average variable cost, and marginal cost) are U-shaped. The marginal cost curve is U-shaped as a direct consequence of increasing, then decreasing marginal returns.
One place to begin is with a price of say $4. The quantity supplied by Phil at a $4 price is thus 7 pounds of zucchinis. This price/quantity supplied combination is one point on Phil's zucchini supply curve.
Consider a higher price. A choice of the $6 price reveals that Phil maximizes profit in this case by producing almost 8 pounds of zucchinis. This higher price induces Phil to increase his quantity supplied from 7 to almost 8. A choice of the $8 reveals that Phil maximizes profit by producing about 8.5 pounds of zucchinis. Once again, a higher price motivates Phil to increase his quantity supplied. Bumping the price up to $10, which results in an even greater quantity supplied, 9 pounds of zucchinis.
Phil reduces the quantity supplied if the price declines up to a point. That point being the minimum of the average variable cost curve, about $2.75. If the price falls below this level, then Phil shuts down production in the short run, incurring a lost equal to total fixed cost.
The conclusion from this analysis is that the marginal cost curve that lies above the average variable cost is Phil's short-run supply curve.
This short-run supply curve explanation relies on Phil being a perfectly competitive price taker. The marginal cost curve is a supply curve only because a perfectly competitive firm equates price with marginal cost. This happens only because price is equal to marginal revenue for a perfectly competitive firm. Should price and marginal revenue not be equal, then a profit-maximizing firm does not equate price to marginal cost. As such, the marginal cost curve is not the firm's supply curve. [1]
In perfect competition, the industry supply curve is the horizontal sum of the marginal cost curves (above the level of average variable cost) of all firms in the industry or by multiplying the supply quantity of the most typical firm by the total amount of firms in the industry. 10, 205
The reason for this is that each firm’s marginal cost curve shows how much that firm will supply at each given market price, and the industry supply curve is the sum of what each firm will supply.
In another words, the short-run supply curve of an industry shows the relationship between the market price and the quantity supplied by all firms in the short run. This is illustrated in the Fig. 2.13 about rakes production, given below.

Fig. 2.13 Short-run market supply curve
Because perfect competition does not exist in the real world, most real world firms do not have equality between price and marginal revenue, and thus do not equate price to marginal cost. In fact, real world firms with varying degrees of market power do not have supply curves comparable to that of an idealistic perfectly competitive firm. This recognition is a major stumbling block in the explanation of the law of supply and the role that the law of supply is plays in market analysis. 15, 634
Chapter II conclusions:
The firms are price takers and in the short - run, the firm has one or more fixed factors, and the only way in which it can change its output is by using more or less of the factors inputs that it can vary. In determining how much output to supply, the firm's objective is to maximize profits subject to two constraints: the consumers' demand for the firm's product that will result in respective revenues and the firm's costs of production. The firm's economic profits are the difference between its total revenues and total costs.
There are two concepts that need to be considered: the first determines whether or not the firm should produce at all, and the second determines how much to produce.
Profit determination may be analyzed in two ways: the first is directly through the analysis of economic profit, especially using a profit curve; second is by comparing total revenue and total cost curves; the third way is by comparing marginal revenue and marginal cost, similarly achieved with marginal revenue and marginal cost curves.
A firm faces three production options in the short run based on a comparison between price, average total cost, and average variable cost. If price is greater than average total cost, a firm earns an economic profit by producing the quantity that equates marginal revenue with marginal cost. If price is less than average total cost but greater than average variable cost, a firm incurs an economic loss, but produces the quantity that equates marginal revenue with marginal cost. If price is less than average variable cost, a firm shuts down production in the short run, incurring an economic loss equal to total fixed cost. Key aspects are: a profit-maximizing firm produces the quantity of output that equates marginal revenue and marginal cost (MR = MC); a perfectly competitive firm is characterized by the equality between price and marginal revenue (P = MR); the law of diminishing marginal returns gives the marginal cost curve a positive slope.
The primary conclusion is that a perfectly competitive firm's short-run supply curve is that segment of its marginal cost curve that lies above the average variable cost curve
In perfect competition, the industry supply curve is the horizontal sum of the marginal cost curves (above the level of average variable cost) of all firms in the industry or by multiplying the supply quantity of the most typical firm by the total amount of firms in the industry.

Chapter III
PERFECT COMPETITION LONG-RUN SUPPLY CURVE
3.1. Long-Run Equilibrium Condition
In the long run a perfectly competitive firm adjusts plant size, or the quantity of capital, to maximize long-run profit. In addition, the entry and exit of firms into and out of a perfectly competitive market guarantees that each perfectly competitive firm earns nothing more or less than a normal profit. That is why as a perfectly competitive industry reacts to changes in demand, it traces out positive, negative, or horizontal long-run supply curve due to increasing, decreasing, or constant cost.
The two adjustments undertaken by a perfectly competitive industry in the pursuit of long-run equilibrium are:
Firm Adjustment: Each firm in the perfectly competitive industry adjusts short-run production and long-run plant size to achieve profit maximization. This adjustment entails producing the quantity that equates price (and marginal revenue) to short run marginal cost for a given plant size as well as selecting the plant size that equates price (and marginal revenue) to long-run marginal cost.
Industry Adjustment: Firms enter and exit a perfectly competitive industry in response to economic profit and loss. If firms in the industry earn above-normal profit, or receive economic profit, then other firms are induced to enter. If firms in the industry receive below-normal profit, or incur economic loss, then existing firms are induced to exit. The entry and exit of firms causes the market price to change, which eliminates economic profit and loss, and leads to exactly normal profit. 2, 165
Long-Run Equilibrium Conditions
The long-run equilibrium of a perfectly competitive industry generates six specific equilibrium conditions, including:
(1) economic efficiency (P = MC),
(2) profit maximization (MR = MC),
(3) perfect competition (MR = AR = P),
(4) breakeven output (P = AR = ATC),
(5) minimum production cost (MC = ATC),
(6) minimum efficient scale (MC = ATC = LRAC = LRMC). 6, 191
In the long-run equilibrium of a perfectly competitive industry, the market price, the number of firms in the industry, and each firm's scale of production adjust such that each firm produces at the lowest point on its long-run average cost curve--which is its minimum efficient scale. This is illustrated at the Figure 5. At this production scale the following multivariable equilibrium condition is achieved:
P = AR = MR = MC = LRMC = ATC = LRAC
The Long-run equilibrium condition is illustrated at the Fig. 3.1

Fig. 3.1 Long-run equilibrium condition 1

For a closer look at these six conditions, consider the hypothetical perfectly competitive Shady Valley zucchini growing industry. While zucchini growing in the real world does not match all of the conditions of perfect competition, it comes close enough to serve as an illustration for this analysis as it did for all the previous.
Economic Efficiency P = MC
The condition that price equals marginal cost (P = MC) is the standard condition for economic efficiency. This condition means that resources are being used to produce goods that generate the greatest possible level of satisfaction.
If the price that a hypothetical zucchini grower named Phil (as well as every other perfectly competitive zucchini grower) receives for his zucchinis is equal to the marginal cost of producing zucchinis, then it is not possible to produce more zucchinis or fewer zucchinis and improve society's overall satisfaction.
From the seller’s viewpoint, marginal cost is the opportunity cost of producing zucchinis. This is the value of other goods not produced when resources are used to produce zucchinis.
Efficiency exists because both values, the value of the good produced and the value of the good not produced, are the same. It is not possible to increase total satisfaction by producing more of one good and less of another.
Only by satisfying the condition (P = MC) is economic efficiency achieved. This condition is satisfied by a perfectly competitive industry in the long run.
Profit Maximization
MR = MC
The condition that marginal revenue equals marginal cost (MR = MC) is the standard condition for profit-maximization by a firm. This condition means that, given existing price and cost conditions, a firm is producing the quantity of output that generates the highest possible level of economic profit.
Phil, the hypothetical zucchini grower, maximizes his economic profit by producing the quantity of zucchinis that equates the marginal revenue received for selling zucchinis ($4) with the marginal cost of producing zucchinis (also $4). It is not possible for Phil to generate any greater economic profit by producing more or fewer zucchinis.
Marginal revenue is the extra revenue that Phil receives for producing zucchinis. Marginal cost is the extra cost Phil incurs when producing zucchinis. When the production of a pound of zucchinis results in a change of revenue that is exactly the same as the change in cost, economic profit does not change, profit its at its maximum.
Only by satisfying the condition (MR = MC) is profit maximized. This condition is satisfied by a perfectly competitive firm in the long run.
Perfect Competition
P = AR = MR
The condition that price equals both average revenue and marginal revenue (P = AR = MR) is the standard condition for a perfectly competitive firm. This condition means that a firm is a price taker with no market control and faces a perfectly elastic demand curve equal to the market price.
The key to this condition is that a perfectly competitive firm has no market control. The price the firm receives for its output is determined in the market by the combined forces of demand and supply. The firm can then sell any or all of its production at this going market price.
A perfectly competitive firm is the only type of firm that satisfies the condition (P = AR = MR). Of course, this condition holds for a perfectly competitive firm in long-run equilibrium.
Breakeven Output
P = SRATC = LRAC
The condition that price equals both short-run average total cost and long-run average cost (P = SRATC = LRAC) indicates that a firm is producing breakeven output, earning exactly a normal profit. The perfectly competitive firm is not receiving an economic profit nor incurring an economic loss.
This condition further means that firms have no incentive to enter or exit the industry. If no firms in the perfectly competitive industry receive above-normal economic profit, then there is no incentive for other firms to enter the industry. If no firms in the perfectly competitive industry incur economic loss or receive below-normal profit, then there is no incentive for any firms to exit the industry.
Only when the condition (P = ATC = LRAC) is satisfied do firms earn exactly a normal profit, receiving neither an economic profit nor incurring an economic loss. And only when this condition is satisfied are there no incentives for firms to enter or exit an industry. This condition is satisfied by a perfectly competitive industry in the long run.
Minimum Production Cost
MC = ATC
The condition that marginal cost equals short-run average total cost (MC = ATC) means that a firm is operating at the minimum point of its short-run average total cost curve. This condition means a firm is producing output at the lowest possible per unit cost and that the capital (or factory) is being used in the most technically efficient manner possible.
Long-run equilibrium for a perfectly competitive industry achieves the condition (MC = ATC) and ensures that firms produce output at the lowest per unit cost possible.
Minimum Efficient Scale
MC = LRMC = ATC = LRAC
The condition that marginal cost equals short-run average total cost which equals long-run average cost and long-run marginal cost (MC = LRMC = ATC = LRAC) means that a firm is operating at the minimum point of its long-run average cost curve, which is the minimum efficient scale of production. This condition means that a firm has constructed the most technically efficient factory and is using this factory in the most technically efficient manner possible. The end result is that the firm is producing output at the lowest possible long-run per unit cost.
Long-run equilibrium for a perfectly competitive industry achieves the condition (MC = LRMC = ATC = LRAC) and ensures that firms produce output at the lowest per unit cost possible. [1]
3.2. Long-Run Industry Supply Curve
The long-run adjustment undertaken by a perfect competitive industry in response to demand shocks can result in increasing, decreasing, and constant costs, which then trace out long-run industry supply curves that are positively-sloped, negative-sloped, or horizontal, respectively.
The path taken by an industry depends on underlying changes in resource prices and production cost. If the expansion of an industry causes higher resource prices and production cost, then the result is an increasing-cost industry. If expansion causes lower resource prices and production cost, then the result is a decreasing-cost industry. If expansion has no affect on resource prices and production cost, then the result is a constant-cost industry. Fig.3.2. The Increasing cost industrty [1]

Fig.3.3. The decreasing cost industry [1]

Fig. 3.4 The Constant-Cost Industry [1]
This exhibit illustrates the hypothetical Shady Valley zucchini market, which is shocked by an increase in demand. The original market equilibrium, with the supply curve S and the demand curve D, is equilibrium price Pe and equilibrium quantity Qe. The increase in demand causes the equilibrium price of zucchinis increases to Pe' and the equilibrium quantity rises to Qe'. The higher price and larger quantity is achieved as each existing firm in the industry responds to the demand shock.
However, the higher price leads to above-normal economic profit for existing firms. And with freedom of entry and exit, economic profit attracts kumquat, cucumber, and carrot producers into this zucchini industry. An increase in the number of firms in the zucchini industry then causes the market supply curve to shift. How far this curve shifts and where it intersects the new demand curve, D', determines if the zucchini market is an increasing-cost, decreasing-cost, or constant-cost industry. [1]
The three alternatives are: Increasing-Cost Industry (Fig. 3.2.) An industry with a positively-sloped long-run industry supply curve that results because expansion of the industry causes higher production cost and resource prices. An increasing-cost industry occurs because the entry of new firms, prompted by an increase in demand, causes the long-run average supply curve of each firm to shift upward, which increases the minimum efficient scale of production.
Decreasing-Cost Industry (Fig. 3.3.)
Second, consider the decreasing-cost alternative. The exhibit illustrated this alternative.
The entry of new firms into the zucchini industry shifts the supply curve to S'. This shift is much greater than in the previous example. This new supply curve intersects the new demand curve, D', at the equilibrium price of Po and the equilibrium quantity of Qo.
The key point here is that the new equilibrium price is lower than the original. The reason for the lower price is that resource prices and thus the cost of production decrease. One possible explanation is that the entry of new zucchini growers into the industry causes the price of one or more key zucchini-growing resources to fall. Once again, it might be a lower price for zucchini seeds or perhaps the price of zucchini fertilizer or zucchini shovels is less. Whatever the actual resource price, the end result is the long-run average cost curve shifts downward. The minimum efficient scale for a given perfectly competitive firm is now at a lower cost.
Constant-Cost Industry (Fig.3.4.)
The last of the three alternatives is a constant-cost industry. The last exhibit illustrated this option. Once again, the entry of new firms in the industry triggers an increase in supply to S'. And once again, this new supply curve intersects the new demand curve, D', at equilibrium quantity of Qo.
However, in this case the new equilibrium price is the same as the old, Pe. And the equilibrium price is the same because the entry of new zucchini growers has no affect on production cost or resource prices. The long-run average cost curve does not shift and the minimum efficient scale for a given perfectly competitive firm does not change. 3,340
Now I would like to talk a little about the effect of the technological innovation on the supply curves. If the industry is in the long-run equilibrium condition, each firm is in zero-profit equilibrium. Now assume that technological development lowers the cost curves of newly built plants. Because price is just equal to the average variable cost for the existing plants, new plants will now be built. The resulting expansion in capacity shifts the short-run supply curve to the right and drives price down. This will continue until price is equal to the short-run average total cost of new plants. At this price, old plants will not be covering their average variable cost, however, such plants will continue in production. As the outmoded plants wear out, they will gradually be closed. Eventually, a new long-run equilibrium will be established in which all plants will use the new technology. [5,212]
3.3. Perfect Competition Market Efficiency
Perfect competition is an idealized market structure that achieves an efficient allocation of resources. This efficiency is achieved because the profit-maximizing quantity of output produced by a perfectly competitive firm results in the equality between price and marginal cost. In the short run, this involves the equality between price and short-run marginal cost. In the long run, this is seen with the equality between price and long-run marginal cost at the minimum efficient scale of production.
Efficiency Condition
An efficient allocation of resources is achieved if it is not possible to increase society's overall level of satisfaction by producing more of one good and less of another good. Such efficiency is achieved by a firm if the price of a good is equal to the marginal cost of production.
Consider how the equality between price and marginal cost results in efficiency.
P: The price that buyers are willing to pay for a good indicates the satisfaction generated from producing and consuming the good. If a good generates more satisfaction, then society is willing to pay a higher price.
MC: The marginal cost of production indicates the satisfaction foregone from the production of other goods. If foregone production generates more satisfaction, then the marginal cost of production is higher.
If price is equal to the marginal cost, then the value of the good produced is equal to the value of goods not produced. The satisfaction obtained from production is just matched by the satisfaction foregone for other production.
In this way, society cannot squeeze any additional satisfaction out of resources by producing more of one good and less of another.
If, however, price and marginal cost are not equal, then satisfaction can be increased.
P > M: If price exceeds marginal cost, then the satisfaction obtained from the good produced is greater than the satisfaction foregone from other production. As such, society can increase overall satisfaction by producing more of the good.
P < MC: If price falls short of marginal cost, then the satisfaction obtained from the good produced is less than the satisfaction foregone from other production. As such, society can increase overall satisfaction by producing less of the good.
Profit Maximization
Consider how this efficiency is achieve for a hypothetical, representative perfectly competitive firm, such as already used before Phil the zucchini growing gardener. Because Phil is one of thousands of zucchini producers, each producing identical products and each being a relatively small part of the overall market, he has no market control.
As such, Phil is a price taker and a hypothetical representation of a perfectly competitive firm. He produces the profit maximizing quantity of zucchinis that equates price and marginal cost. If the going market price is $4, then Phil produces zucchinis until his marginal cost is also $4. This equality between price and marginal cost (P = MC) is the key to efficiency.
Short-Run Efficiency
The production is efficient because price is equal to marginal cost. The value of the production is equal to the marginal cost of foregone satisfaction.
Or to state this more precisely, the last portion produced with the economy's scarce resources generates the monetary amount worth of satisfaction. And the value of the scarce resources used to produce the last portion of the product could have been used to produce some other good valued at the same price.
This means that society is allocating scarce resources in the production such that it is not possible to increase total satisfaction by producing more or fewer products. This is it, this is as good as it gets.
Short-Run Inefficiency
Suppose that price and marginal cost are not equal. In this case, the economy gives up less satisfaction from other goods not produced than it receives from the products that are produced. This is a great deal, a whole lot like trading $3 for $4. Who would not take a trade like that?
What this means, however, is that the economy is not producing enough products. And when it produces more good it increases satisfaction. For each $4 worth of zucchinis produced with resources valued at $3, the economy obtains an extra $1 of satisfaction. But if it can take steps to increase satisfaction, then it must not be getting the highest possible satisfaction with the current production.
A similar story can be told if the marginal cost of zucchini production (say $5) is greater than the $4 zucchini price. In this case, the economy is giving up more satisfaction from other goods not produced than it receives from the zucchinis that are produced. This is not a good deal, a whole lot like trading $5 for $4. Who would want a trade like that?
What this means is that the economy is producing too many same goods. If it reduced the production of zucchinis, then it would increase satisfaction. For each $4 worth of zucchinis produced with resources valued at $5, the economy loses $1 of satisfaction. As such, by not producing these zucchinis, satisfaction increases by $1. Of course, if the economy can take steps to increase satisfaction, then it must not be getting the highest possible satisfaction with the current production. [1]
Long-Run Efficiency
Not only does perfect competition generate efficiency in the short run, it also efficiently allocates resources in the long run. The long-run adjustment of firms entering and exiting the industry as each firm in the industry maximizes profits generates the following long-run equilibrium condition: P = SRMC = LRMC = SRAC = LRAC
This condition means that the market price is equal to marginal cost (both short run and long run) and average cost (both short run and long run). With price equal to marginal cost, each firm maximizes profit and has no reason to adjust its quantity of output or factory size. Moreover, with price equal to average cost, each firm in the industry earns only a normal profit. Economic profit is zero and there are no economic losses.
This long-run equilibrium condition is only satisfied at the minimum of the long-run average cost curve, also termed the minimum efficient scale. The economy cannot utilize scarce resources for production more efficiently that at the minimum efficient scale.
It is also worth mentioning that the great appeal of perfect competition as a measure of organizing structure is lies in the decentralized decision making of myriad firms and households. No individual firm or household executes power over the market. At the same time it is not necessary for government to intervene to determine resource allocation and price. [5,215]
Chapter III conclusions:
In the long run a perfectly competitive firm adjusts plant size, or the quantity of capital, to maximize long-run profit. In addition, the entry and exit of firms into and out of a perfectly competitive market guarantees that each perfectly competitive firm earns nothing more or less than a normal profit. That is why as a perfectly competitive industry reacts to changes in demand, it traces out positive, negative, or horizontal long-run supply curve due to increasing, decreasing, or constant cost.
The long-run equilibrium of a perfectly competitive industry generates six specific equilibrium conditions, including: economic efficiency (P = MC), profit maximization (MR = MC), perfect competition (MR = AR = P), breakeven output (P = AR = ATC), minimum production cost (MC = ATC), minimum efficient scale (MC = ATC = LRAC = LRMC).

CHAPTER IV
PRACTICAL ANALYSIS
The area to be analyzed that most closely recalls on all the requirements of the perfect competition conditions is agriculture. Obviously the products produced, grains in particular, are all unlabeled, similar, produced in the same way. Certainly there is a wide variety of types of wheat, to be more specific, but the growing basics remain the same.
The total land derived for agricultural needs made up 41625,8 ha. Total clean revenue | Revenue from production sale | Indirect taxes and other extractions | Clean revenue | Other operational revenue | Other revenue | 3951,1 | 3678,7 | 469,1 | 3218,6 | 690,8 | 41,7 |
The total revenue obtained comprises of the following elements:

Fig. 4.1 The revenue received by agricultural producers in January-August 2009 (mln. UAH) [21]

Operationalexpenses | Other regular expenses | Extra expenses | Total expenses | Clean loss | 3858,7 | 97,3 | 0,1 | 3988,2 | -37,1 |
Fig. 4.2 Agricultural expenses and loss during January – August 2009 (mln. UAH) [21]
The profit as I mentioned in the Chapter II can be calculated by the formula
EP = TR – TC
So, the loss received was
EL = 3951,1 – 3988,2 = -37,1 (mln. UAH)
We can make a conclusion that the producers in general need to change their factors of production to raise profits. Now let’s consider the percentage of profitable enterprises in agriculture, as it is shown in the Fig. 4.3

| Clean profit (loss)mln UAH | Firms gaining profit | Firms gaining loss | | | % to total number of firms | Financial Result | % to total number of firms | Financial Result | Agriculture | -37.1 | 80.6 | 68.0 | 19.4 | 105.1 |
Fig. 4.3 Profitability of agrarian firms [21]

It would be reasonable to mention that the percentage of profitability of firms selling grain increased 16,4% comparing to 2008.
In order to define the possible profitability of a certain agricultural product the aspect of its yield per hectare has separate interest to producers. The more can be grown on the limited area the more can be sold, and so the more profit can be obtained. Therefore significant expenses are put into increasing it. In the following diagram in the Fig. 4.4 there are shown the indexes of the productivity of the key grown plants.

| Grains (after processing) | Sugar beet (fabric) | Sunflower seeds (after processing) | Potatoes | Vegetables | Fruit and Berries | 2008 | 34,6 | 356 | 15.3 | 139 | 174 | 64,4 |
Fig. 4.4 Productivity of agricultural plants (100 kg. per ha) [21]

But these values may be also interesting if compared to the previous year to notice the improvement. The next chart provides this visually.

Fig. 4.4 productivity of grain variation (in 100kg/ha) [21]

From this we may whitnes that the productivity of grain has risen, which is without doubt a positive tendency to increase the aggreagete supply of it on the grain market of Ukraine. As I decided to specify my reaserch to the grain products, which correspond to all the criteria of the perefct market competition.
I have demonstrated in my theoratical part that price is one of the major factors in determinind the supply. Using the formula TR = P*Q we calculate the total revenue. Because of this we certainly need to posses the information about the price of grain, which I provided in the Appendix II. In January – September of 2009 the agricultural producers raised the amount of grain sold by 40,9% or by 6,746 mln tones up to 23,227 mln tones comparing with January – October 2008. In the structure of realization of products 3,9% respond to the processing enterprises, 0,9% - to the population in terms of wages (including the system of public food industry), 5,1% - to land leaser as payment for land and held shares.
Moreover, 6,8% of grain enterprises sold on markets. Through other channels agrarians fulfilled 83% of grain. In January – September of 2008 agrarians sold 16,481 mln. of tones of grain. According to “Agro perspective”, agricultural enterprises in January – September increased the sold amounts of grain by 43,6% or by 5,969 mln tones, up to 19,67 mln tones, comparing to January – September of 2008. [22]

CONCLUSIONS
After this close examination of the topic of supply of the firms and industry in the perfect conditions I would like to sum up the main aspects.
In the first chapter it was stated and given clear clarification of the main distinguishing part of approaching the topic of supply- the perfect competition condition, which unlike the other three market structures entails such peculiar characteristics as a large number of small firms, identical products sold by all firms, perfect resource mobility or the freedom of entry into and exit out of the industry, and perfect knowledge. Deriving from these it was introduced the perfectly elastic horizontal demand curve of such price-taking competitive firm.
The time frame was significant which is why I split the supply background analysis into the short- and long-run period. In the short - run, the firm has one or more fixed factors, and the only way in which it can change its output is by using more or less of the factors inputs that it can vary. It is important to note that price does not change, neither the marginal revenue not average revenue varies with output (P=MR=AR). A perfectly competitive firm is presumed to produce the quantity of output that maximizes economic profit, which can be at the point of the maximum difference between total revenues and total costs, or the output that equates its marginal cost of production with the market price of its product MC=P (as long as they exceed average variable cost). A firm faces three production options in the short run based on a comparison between price, average total cost, and average variable cost. If price is greater than average total cost, a firm earns an economic profit by producing the quantity that equates marginal revenue with marginal cost. If price is less than average total cost but greater than average variable cost, a firm incurs an economic loss, but produces the quantity that equates marginal revenue with marginal cost. If price is less than average variable cost, a firm shuts down production in the short run, incurring an economic loss equal to total fixed cost. And of course the firm is initially indifferent whether to produce or not at the shut-down price at which the firm can just cover its average variable cost.
It was also proved that a perfectly competitive firm's supply curve is that portion of its marginal cost curve that lies above the minimum of the average variable cost curve. Whereas the industry supply curve is the horizontal sum of the marginal cost curves (above the level of average variable cost) of all firms in the industry or by multiplying the supply quantity of the most typical firm by the total amount of firms in the industry.
In the long run a perfectly competitive firm adjusts plant size, or the quantity of capital, to maximize long-run profit. In addition, the entry and exit of firms into and out of a perfectly competitive market guarantees that each perfectly competitive firm earns nothing more or less than a normal profit. That is why as a perfectly competitive industry reacts to changes in demand, it traces out positive, negative, or horizontal long-run supply curve due to increasing, decreasing, or constant cost causing respective supply curves. Therefore, there is achieved long-run equilibrium condition, which itself generates several specific circumstances: economic efficiency (P = MC), profit maximization (MR = MC), perfect competition (MR = AR = P), breakeven output (P = AR = ATC), minimum production cost (MC = ATC), minimum efficient scale (MC = ATC = LRAC = LRMC).
All of these peculiarities assist the emerging of the ultimately impersonal decision-making world of perfect competition, where no single or joined force wields economic power and the market mechanism, like an invisible hand, determines the allocation of resources and result in respective supply processes.

LITERATURE

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