lect5n - (Perfect) Competition The model of perfect...

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Unformatted text preview: (Perfect) Competition The model of perfect competition is based on the following assumptions: Many small suppliers, small enough to not have no impact on other suppliers. Product homogeneity. Perfect information- all agents know prices set by all firms. Equal access- all firms have access to all production technologies. Free access- any firm may enter or exit the market. (Perfect) Competition As in the monopoly case, firms maximize profits by setting marginal revenue equal to marginal cost. However, unlike before, now marginal revenue=price. We represent this as each firm facing a horizontal demand curve and acting like a price taker. Perfect competition is efficient in two senses: (Perfect) Competition Each firm produces the efficient output level, where MR=MC. The set of firms active is efficient. where in the long run price equals AC. Note that this notion of efficiency is in a static sense. Competitive Selection Here we will relax the last two assumptions....
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lect5n - (Perfect) Competition The model of perfect...

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