Chapter 9

Chapter 9 - Chapter 9-The Competitive Ideal Pure...

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Chapter 9—The Competitive Ideal Pure competition o Many potential buys and sellers so individual decisions do not noticeably affect market supply or demand or market price—PRICE TAKERS o Homogeneous good o No entry or exit barriers. In the long run, firms can enter an industry with no cost disadvantages relative to established firms and established firms can costlessly transfer resources to other industries. o Supply curve and demand curve are perfectly elastic (horizontal) for each buyer and firm o Purely competitive firms decide what amounts of output to produce and sell at current prices (quantity adjustment). They can only sell at the going price. o Only compete for technically efficient production; try to minimize costs (resources and technologies) while producing the level of output that maximizes profit. Short run o Short run profit maximization: total revenue minus total cost (TR-TC). Maximized where the vertical distance between TR and TC is greatest o Revenue grows as output rises. o BREAK EVEN or NORMAL PROFIT POINTS: when TR = TC and economic profit is zero. Lowest break-even point occurs when the demand curve for each individual firm is tangent to the minimum point of the firm’s ATC. o Marginal cost equals marginal revenue (MC = MR) MC is the increase in TC incurred by producing one more unit of output MR is the increase in total revenue from selling one more unit. MR = P for purely competitive firm
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This note was uploaded on 03/23/2008 for the course ECON 101 taught by Professor Balaban during the Spring '07 term at UNC.

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Chapter 9 - Chapter 9-The Competitive Ideal Pure...

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