# Class 11 Economics Chapter 4 Notes | SwaVid NCERT Class 11 Economics notes: key ideas, definitions, common mistakes and 3 quick checks with worked answers, written by SwaVid from the NCERT textbook. Canonical: https://www.swavid.com/cbse/class-11/economics/chapter/the-theory-of-the-firm-under-perfect-competition Source: https://www.swavid.com/cbse/class-11/economics/chapter/the-theory-of-the-firm-under-perfect-competition # The Theory of the Firm under Perfect Competition ## Definitions, formats and formulas ## Key ideas ## Common mistakes ## Quick checks ## Keep going ## Questions parents ask ## Class 11 Economics on SwaVid ### Perfect competition features ### Revenue concepts of a competitive firm ### Conditions for profit maximisation ### Short-run supply curve ### Long-run supply curve ### Shutdown point and break-even point ### Market supply and price elasticity ### Next chapter ### Related chapter ### All chapters SwaVid › CBSE › Class 11 › Economics › The Theory of the Firm under Perfect Competition Notes written by SwaVid from the NCERT textbook. Class 11 Economics, Chapter 4. Key ideas, definitions and common mistakes. CBSE does not print marks for a single chapter. Short answer. This chapter analyses the behaviour and supply decisions of a profit-maximising firm operating in a perfectly competitive market. It shows how revenue curves relate to market price, how profit is maximised where marginal cost equals price, and how individual supply curves combine into the market supply curve. Source: NCERT Introductory Microeconomics (Reprint 2026-27) , Chapter 4, The Theory of the Firm under Perfect Competition A perfectly competitive market has a large number of buyers and sellers trading a homogeneous product. Free entry and exit exist, and all buyers and sellers have perfect information, which makes every individual firm a price taker. Total revenue is the market price multiplied by output sold. Because the price remains constant regardless of the firm's output, average revenue and marginal revenue both equal the market price, producing a horizontal demand curve facing the firm. A firm maximises profit at an output where price equals marginal cost, marginal cost is non-decreasing, and price covers variable costs in the short run or average costs in the long run. If these conditions hold, the firm earns the maximum possible economic profit. In the short run, a firm's supply curve is the rising part of its marginal cost curve at or above the minimum average variable cost. Below the minimum average variable cost, the firm produces zero output because it cannot even cover its variable expenses. In the long run, all costs are variable, so a firm operates only if the price covers average cost. The long-run supply curve is the rising segment of the long-run marginal cost curve at or above the minimum of the long-run average cost curve. The shutdown point in the short run is the minimum point of the average variable cost curve where price equals average variable cost. The break-even point occurs where price equals minimum average cost, earning the firm normal profit. Market supply is the horizontal summation of the supply curves of all individual firms in the market. Price elasticity of supply measures the percentage change in quantity supplied divided by the percentage change in the market price. Try each question first. Then tap it to see the answer. TR = p × q = 12 × 15 = 180 AR = p = 12 MR = p = 12 TR = ₹180, AR = ₹12, MR = ₹12 Check condition 1: p = SMC gives 25 = 25. Check condition 2: SMC is rising at q = 10. Check condition 3: p ≥ AVC gives 25 ≥ 20, which is satisfied. Yes, q = 10 satisfies all profit-maximising conditions Δp = 25 - 20 = 5 Δq = 120 - 80 = 40 eS = (Δq / Δp) × (p / q) = (40 / 5) × (20 / 80) = 8 × 0.25 = 2 2 Market Equilibrium . Production and Costs . The 13 chapters of Class 11 Economics . CBSE does not give marks to one chapter. It prints marks for units or parts, and the chapter list page shows them all. No. They are written by SwaVid from the NCERT textbook. The CBSE curriculum is the reference for what is assessed. Market Equilibrium. SwaVid is an AI tutor for Indian students in Classes 6 to 12. It finds the earlier ideas a child missed, then teaches today’s chapter. Start free to see how it works. - Ch 4 NCERT book - 80 marks, theory paper - 3 quick checks - Assuming marginal revenue falls as output increases under perfect competition . Because the firm is a price taker, every additional unit sells at the same market price, making marginal revenue constant and equal to price. - Thinking a firm shuts down whenever price falls below average cost in the short run . In the short run, fixed costs are already incurred; the firm continues producing as long as price covers average variable cost. - Adding firms vertically to find market supply . Market supply is found by horizontal summation, meaning you add the quantities supplied by each firm at a given price. - Treating normal profit as profit above economic costs . Normal profit is already included in total cost as an opportunity cost of the entrepreneur, so zero economic profit means the firm is earning normal profit. ## Key Links - [CBSE](https://www.swavid.com/cbse) - [Class 11](https://www.swavid.com/cbse/class-11) - [Economics](https://www.swavid.com/cbse/class-11/economics/chapters) - [Start free →](https://www.swavid.com/signup) - [All 13 chapters](https://www.swavid.com/cbse/class-11/economics/chapters) - [NCERT Introductory Microeconomics (Reprint 2026-27)](https://ncert.nic.in/textbook.php) - [Open notes](https://www.swavid.com/cbse/class-11/economics/chapter/market-equilibrium) - [Open notes](https://www.swavid.com/cbse/class-11/economics/chapter/production-and-costs) - [Class 11 Economics](https://www.swavid.com/cbse/class-11/economics/chapters) - [Start free →](https://www.swavid.com/signup)