04. Perfect Competition - Equilibrium

04. Perfect Competition - Equilibrium - Perfect Competition...

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Perfect Competition          Perfect competition is an abstraction, designed to isolate the essential elements of competition. As such, it provides a frame of reference. The perfection is something that a real economic system at best approaches as a general tendency . Please think about these remarks as we develop the concept of competitive equilibrium. There are other concepts worth repeating. The first is that the competitive firm acts as a price-taker. This follows from three structural conditions: many sellers, free flow of information, and product homogeneity. The firm is the “atom” that operates in the neighborhood of an equilibrium that is determined by “market forces”. What we want to show is that “market forces” are the collective effect of individual buyers and sellers. That “atomistic” part means that the firm is figuratively operating inside that point on the right-hand side of Figure 1. Individual Firm MARKET Individual Firm S D $/q P* $/Q q* q Q* Q d mc Firm “takes” price, adjusts q* where mc is equal to P .
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04. Perfect Competition - Equilibrium - Perfect Competition...

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