Ch11 - Chapter 11: Perfect Competition Objectives: Define...

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Chapter 11: Perfect Competition Objectives: Define perfect competition Explain how price and output are determined in perfect competition Explain why firms sometimes shut down temporarily and lay off workers Explain why firms enter and leave the industry Predict the effects of a change in demand and of a technological advance Explain why perfect competition is efficient
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Market Structure Continuum FOUR MARKET MODELS Pure Competition (e.g., corn, Dairy Products)
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Market Structure Continuum Pure Competition FOUR MARKET MODELS Imperfect Competition All Markets that are Not Purely Competitive
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Market Structure Continuum Pure Competition Pure Monopoly Monopolistic Competition Oligopoly FOUR MARKET MODELS Pure Competition: Very Large Number of Sellers Standardized Product “Price Takers” Established firms have no advantage over new firms Free Entry and Exit
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DEMAND AS SEEN BY A PURELY COMPETITIVE SELLER Perfectly Elastic Demand Price Taker Role Total Revenue Average Revenue Marginal Revenue Demand Curve For example. ..
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$131 0 $ 0 Product Price (P) (Average Revenue) Total Revenue (TR) Marginal Revenue (MR) Quantity Demanded (Q) DEMAND AS SEEN BY A PURELY COMPETITIVE SELLER
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$131 131 0 1 $ 0 131 $131 Product Price (P) (Average Revenue) Total Revenue (TR) Marginal Revenue (MR) Quantity Demanded (Q) DEMAND AS SEEN BY A PURELY COMPETITIVE SELLER ]
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$131 131 131 0 1 2 $ 0 131 262 $131 131 Product Price (P) (Average Revenue) Total Revenue (TR) Marginal Revenue (MR) Quantity Demanded (Q) DEMAND AS SEEN BY A PURELY COMPETITIVE SELLER ] ]
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$131 131 131 131 0 1 2 3 $ 0 131 262 393 $131 131 131 Product Price (P) (Average Revenue) Total Revenue (TR) Marginal Revenue (MR) Quantity Demanded (Q) DEMAND AS SEEN BY A PURELY COMPETITIVE SELLER ] ] ]
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$131 131 131 131 131 0 1 2 3 4 $ 0 131 262 393 524 $131 131 131 131 Product Price (P) (Average Revenue) Total Revenue (TR) Marginal Revenue (MR) Quantity Demanded (Q) DEMAND AS SEEN BY A PURELY COMPETITIVE SELLER ] ] ] ]
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$131 131 131 131 131 131 131 131 131 131 131 0 1 2 3 4 5 6 7 8 9 10 $ 0 131 262 393 524 655 786 917 1048 1179 1310 $131 131 131 131 131 131 131 131 131 131 Product Price (P) (Average Revenue) Total Revenue (TR) Marginal Revenue (MR) Quantity Demanded (Q) DEMAND AS SEEN BY A PURELY COMPETITIVE SELLER ] ] ] ] ] ] ] ] ] ]
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DEMAND, MARGINAL REVENUE, AND TOTAL REVENUE IN PURE COMPETITION TR D = MR 1 2 3 4 5 6 7 8 9 10 1179 1048 917 786 655 524 393 262 131 0 Price and revenue Quantity Demanded (sold)
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THE FIRM’S DECISIONS IN PERFECT COMPETITION A perfectly competitive firm faces two constraints: 1. A market constraint summarized by the market price and the firm’s revenue curves. 2. A technology constraint summarized by firm’s product curves and cost curves (like those in Chapter 10).
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Ch11 - Chapter 11: Perfect Competition Objectives: Define...

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