disc9 - DISCUSSION SECTION 9 Perfect Competition A...

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Unformatted text preview: DISCUSSION SECTION 9 Perfect Competition A price-taking agent (producer or consumer) is an agent whose actions have no effect on the market price of the good. A perfectly competitive market is a market in which all participants are price takers. Characteristics of Perfect Competition: (1) Many small firms, each with a very small market share (2) Standardized product (3) Free entry and exit ------------------------------------------------------------------------------------------------------------------------------- Marginal revenue (MR) is the change in total revenue generated by one additional unit of output Optimization condition (Profit is maximized): MR=MC For a price-taking firm MR=P (price). So optimization condition becomes P=MC. ------------------------------------------------------------------------------------------------------------------------------- Whenever P>minATC , the firm is profitable . Whenever P=minATC , the firm breaks even . Whenever P<minATC , the firm incurs loses . ------------------------------------------------------------------------------------------------------------------------------- Shut-down decision : SR : If P<minAVC , the firm should shut-down ....
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disc9 - DISCUSSION SECTION 9 Perfect Competition A...

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