Ch 10The Theory of the Firm under Perfect Competition — Class 12 Economics, concept-first.

The previous chapter examined a firm's production function and its cost curves. This chapter asks a different question: how much does a firm actually choose to produce? The answer rests on a strong --…

To analyse how a firm maximises its profit, we first need to specify the market environment in which it operates. This chapter focuses on one particular market structure: perfect competition.

In a perfectly competitive market, a firm can sell any quantity it chooses at the market price. There is no reason to set a price lower than the market price, because the firm can sell as much as it w…

A firm’s fundamental goal is to maximise its profit. Profit, denoted by the Greek letter , is the difference between what the firm earns from selling its output and what it spends to produce that outp…

A firm's profit is simply the difference between what it earns (total revenue) and what it spends (total cost). Profit = Total Revenue – Total Cost.

The second condition for profit maximisation under perfect competition deals with the shape of the marginal cost (MC) curve at the chosen output level.

The third condition for profit maximisation has two separate parts — one for the short run and one for the long run.

The textbook uses two distinct diagrams to show how a perfectly competitive firm chooses its profit-maximising output. One diagram deals with the long run, the other with the short run.

A firm’s supply is the quantity it chooses to sell at a given price, assuming technology and the prices of factors of production remain unchanged.

The short run supply curve of a firm tells us how much output the firm will produce at each possible market price, given that its plant size is fixed.

The long run supply curve of a firm under perfect competition is derived from its long run cost curves.

In the previous discussion on deriving the firm's supply curve, we established a critical rule: in the short run, a firm will continue to produce as long as the market price is greater than or equal t…

Every firm needs to earn at least some minimum level of profit to remain in its current line of business. This minimum is called normal profit.

The supply curve of a firm under perfect competition is not a separate, independent curve. As we established in the previous section, it is simply that portion of the firm's marginal cost (MC) curve w…

When a firm introduces a technological improvement — whether through a new production technique, better machinery, or an organisational innovation — the relationship between inputs and output changes.…

A change in the price of an input — say, a rise in the wage rate of labour — directly raises the firm’s cost of production.

The market supply curve tells us the total quantity that all firms in a market are willing to produce at each possible market price.

The price elasticity of supply measures how much the quantity supplied of a good changes when its price changes.

The key terms introduced in this chapter, gathered in one place for quick revision — a compact glossary for this CBSE Class 12 Economics chapter.

- In a perfectly competitive market, firms are price-takers — each firm is too small to influence the market price and simply accepts it as given.

Sample papers and previous-year board questions for this subject.