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ECN_203__6___Competitive Markets (f09)

ECN_203__6___Competitive Markets (f09) - Chapter 6...

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Chapter 6 – Competitive Markets A market is competitive if there are: 1) Large amount of buyers and sellers in the market. As a result, buyers and sellers are “ price takers ” (must take P set by market) 2) Same quality of good across sellers. 3) No barriers to entry or exit. 4) Equal access to information.
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Competitive Markets and Efficiency Unlike other market structures, a competitive market always achieves efficiency, where: 1. Ensures firms find & implement the most efficient ( lowest cost ) technique of production. 2. Rewards firms for finding innovative ways for efficiency ( temporarily!)
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Competitive Markets and Efficiency 1. Eventually, a point will be reached where buyers are paying the lowest possible price while still covering the firm’s economic costs of producing. This gives firms just enough incentive to continue. “Magic of Markets” -- competitive markets always reach their most efficient point.
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Profit, Revenue and Cost of Competitive Firm Revenue Total Revenue: R from total sales TR= P x Q
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