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ch08_condensed - Micro 101, Chapter 8 1 Chapter 8: Perfect...

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Micro 101, Chapter 8 1 Chapter 8: Perfect Competition Three requirements of perfectly competitive markets: (1) many buyers and sellers (2) a standardized product (no variety) (3) no significant _________ to entry into the market each firm in a perfectly competitive environment is a “price ______” treats the price as _____ at a level outside of its control (price determined by aggregate S and D) - any change in the firm’s output, q , has no effect on price; the firm’s output is tiny compared with market quantity, Q - implies perfectly _______ demand, d , for its product (horizontal demand curve) - any attempt to increase price above market price would lead to loss of ____ customers ex. aggregate demand curve ( D ) for corn is downward- sloping, but an individual farmer’s demand curve (d) is ____________ From previous chapter: Profit Maximization at MR=MC 0123456 Q P D MR MC Q* Under perfect competition (only), the demand curve for an individual firm is a horizontal line, and MR is represented by that same horizontal line
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Micro 101, Chapter 8 2 Recall: TR = price*quantity = P*q, - Under perfect competition, P is ________ across all q, so we can factor out the P: Note: ___________ only under perfect competition! Intuition : If the price is $2.50 and a firm can sell as many units of output as it desires at that price, then every extra unit sold increases total revenue by $_____. If the firm must lower the price to sell an additional unit, then the increase in total revenue is less than $2.50. In addition, average revenue P q * P q AR q TR = = = is also $2.50.
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This note was uploaded on 03/26/2008 for the course ECON 101 taught by Professor Brentkreider during the Spring '07 term at Iowa State.

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ch08_condensed - Micro 101, Chapter 8 1 Chapter 8: Perfect...

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