When P > ATC, the business is the only one that can make an economic profit, making P=MC the ideal point for the competitive producer. As a result, a competitive firm only makes an economic profit if P> ATC.
A hypothetical market system is referred to as perfect competition. The perfect competition offers a valuable model for illustrating how supply and demand influence pricing and behavior in a market economy, despite perfect competition seldom occurring in actual markets.
There are numerous buyers and sellers in a market with perfect competition, and prices always reflect supply and demand. Companies only make as much money as is necessary to stay in operation. Other businesses would enter the market and reduce revenues if they were to make excessive profits.
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