Review of Competitive Markets(f09)

Review of Competitive Markets(f09) - Competitive Markets...

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Competitive Markets Conditions that must hold for a market to be considered competitive: 1. Large number of buyers and sellers in the market 2. Same quality good across sellers (#1 and #2 imply both the individual firm and buyer are price takers). 3. No barriers for firms to enter or exit the market. 4. Equal access to information (If one firm implements a cost-saving technique, all firms have access to this information) Steps to demonstrating how competitive market reach a long-run competitive equilibrium: Step 1: Show two graphs—1. Market (Demand and Supply) and 2. Representative firm showing marginal cost curve (the upward portion of the marginal cost is the firm’s supply line) Step 2: Determine the price the individual firm faces. The price the firm receives is a horizontal line from the equilibrium price set in the market Why? Price is determined in the market… so many buyers and sellers, an individual firm must take the price as given (conditions #1 and #2) Step 3: Determine the demand facing the individual firm. Demand is horizontal at the
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This note was uploaded on 10/13/2009 for the course ECN 203 taught by Professor Evensky during the Fall '07 term at Syracuse.

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Review of Competitive Markets(f09) - Competitive Markets...

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