25E52000 - Market Entry Strategies for Entrepreneurial Business, Lecture, 11.1.2022-25.2.2022

Price equals marginal cost, meaning the price just covers the cost of producing that unit of beer but selling that unit of beer does not generate any profit.

Because firms can enter and exit costlessly, no single firm can prevent another firm from entering nor would it make any sense to do so because there are numerous competitors anyway in perfectly competitive markets and all of them have to sell at the market price. So there is no incentive to take aggressive action, such as price-cutting, against competitors.

Producer surplus is the flip side of consumer surplus. It is defined as the difference between the price (P) that the consumer pays for the product, and the cost (C) to the firm of making that product. If P – C > 0, the firm is making money and generating producer surplus.