ECN 203 (6), Production Behavior -- Perfect Competition

ECN 203 (6), Production Behavior -- Perfect Competition -...

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Chapter 6 – Production Behavior: Perfect Competition This chapter examines perfect competition as a market structure. It also develops the profit maximizing producer’s choice of output under perfect competition, and the formation of profits. Finally, it examines how markets adjust to firms making excess profits, or suffering losses in perfect competition.
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Perfect Competition: Key Characteristics There are a large number of producers within a market for a certain good. The goods within a market are homogeneous – there exist no quality differences, real or perceived, between the same good made by different producers. Easy entry and exit (no barriers to entry ).
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Market Demand and Supply for Good in General Consider, for example, eggs. Market Demand – usual market demand curve for eggs, discussed in chapter 4. Market Supply – usual market supply curve for eggs, discussed in chapter 5. Market forms an equilibrium price (P*) and equilibrium quantity (Q*) of eggs.
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Individual Producer’s Good Homogeneous goods individual producer’s eggs are perfect substitutes with other egg producers’ eggs. Therefore, the Demand for the individual producer’s eggs is described as a horizontal line at the market equilibrium price P*.
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for the Individual Producer Perfect Competition: firms are price takers , they have no power over setting or changing the price of their product. Total Revenue = (P*)(Q)
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This note was uploaded on 09/15/2009 for the course ECN 203 taught by Professor Evensky during the Fall '07 term at Syracuse.

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ECN 203 (6), Production Behavior -- Perfect Competition -...

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