perfect competition market - Supply How much does the...

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9/8/2014 In a perfect competition market: - In the long run, firms earn zero profits not more than normal profit not supernormal you are earning enough to cover their costs and risk Growth of the market is not a good predictor of performance Depends on a firm's’ potential to create and capture value Value is surplus: the difference between prices and costs If money is not exchanged, the player is not on the value chain Total value created is: - Demand side: How much does the customer value the product he/she is buying What is the maximum cost they are willing to pay
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Unformatted text preview: - Supply: How much does the supplier value the resource he/she is selling What is the minimum amt. they are willing to accept The difference defines value created Willingness to pay is based on utility, not price in the market also set by the next best alternative The more price competition there is, the more you are able to maximize the value captured Opportunity cost is the willingness to sell. ..what is the minimum you will accept to sell Zero profit is when you price at the opportunity cost...
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