Chapter 9 Micro - McConnell-Brue - Pure Competition

Chapter 9 Micro - McConnell-Brue - Pure Competition -...

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Economics 212X Principles of Microeconomics
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Pure Competition Chapter 9
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I. Four Market Models A. Pure Competition – entails a large number of firms, standardized product, and easy entry (or exit) by new (or existing) firms. B. Pure Monopoly – has one firm that is the sole seller of a product or service with no close substitutes; entry is blocked for other firms.
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A. Monopolistic Competition – close to pure competition, except that the product is differentiated among sellers rather than standardized, and there are fewer firms. B. Oligopoly – only a few firms exist, so each is affected by the price-output decisions of its rivals.
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II. Pure Competition: Characteristics and Occurrence A. The characteristics of pure competition 1. Many sellers – are enough so that a single seller has no impact on price by its decisions alone. 2. Products are standardized; each seller’s product is identical to its competitor’s.
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3. Freedom of entry and exit means no significant obstacles preventing firms from entering or leaving the industry. 4. Individual firms must accept the market price; they are price takers and can exert no influence on price.
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5. Pure competition is rare in the real world. a. The model helps analyze industries with characteristics similar to pure competition. b. The model provides a context in which to apply revenue and cost concepts developed in previous chapters.
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c. Pure competition provides a norm or standard against which to compare and evaluate the efficiency of the real world.
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A. There are four major objectives to analyzing pure competition. 1. To examine demand from the seller’s viewpoint. 2. To see how a competitive producer responds to market price in the short run. 3. To explore the nature of long-run adjustments in a competitive industry.
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4. To evaluate the efficiency of competitive industries.
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III. Demand from the Viewpoint of a Competitive Seller A. The individual firm will view its demand as perfectly elastic. 1. The demand curve is no perfectly elastic for the industry: It only appears that way to the individual firm, since it must take the market price no matter what quantity it produces. 2. Perfectly elastic demand curve is a horizontal line at the price.
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A. Definitions of average, total, and marginal revenue. 1.
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Chapter 9 Micro - McConnell-Brue - Pure Competition -...

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