Econfin 6.pptx - JOHN HEAMAN Lecture 6 Perfect competition...

Info icon This preview shows pages 1–6. Sign up to view the full content.

View Full Document Right Arrow Icon
JOHN HEAMAN Lecture 6 Perfect competition and monopoly
Image of page 1

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Market Structure and Firm Behaviour Competitive behaviour refers to the extent to which individual firms compete with each other to sell their products. Competitive market structure refers to the power that individual firms have over the market - Perfect competition occurs where firms have no market power and hence no need to react to each other. PERFECT COMPETITION
Image of page 2
Theory of Perfect Competition The theory of perfect competition is based on the following assumptions: firms sell a homogenous product; customers are well informed; each firm is a price-taker; the industry can support many firms, which are free to enter or leave the industry.
Image of page 3

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Short-run Equilibrium Any firm maximises profits producing the output where (1) its marginal cost curve intersects the marginal revenue curve (2) from below - or by (3) producing nothing if average cost exceeds price at all outputs. A perfectly competitive firm is a quantity-adjuster, facing a perfectly elastic demand curve at the given market price and maximising profits by choosing the output that equates its marginal cost to price. The supply curve of a firm in perfect competition is its marginal cost curve, and the supply curve of a perfectly competitive industry is the sum of the marginal cost curves of all its firms. The intersection of this curve with the market demand curve for the industry’s product determines market price. PERFECT COMPETITION
Image of page 4
Long-run Equilibrium Long-run industry equilibrium requires that each individual firm be producing at the minimum point of its LRAC curve and be making zero profits.
Image of page 5

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 6
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern