CH 11 outline

CH 11 outline - Competition Perfectly competitive market no...

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1 Competition Perfectly competitive market Î no individual supplier has significant influence on the price of the product Î firms are price takers 1. Standardized Product 2. 3. No barriers to new firms entering the market 4. Full information Profit Maximization in Perfect Competition Two methods to find the optimal output: 1. Calculate Profit at every possible point 2. Set MC=MR=P Î Find q* Where MR ( marginal revenue) is the change in total revenue from selling one more unit of a product.
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2 Profit Maximization in Perfect Competition Note: Maximum profit positive economic profit. π >0 IFF P(q*)>ATC(q*) Why do firms ever produce at a loss? Supply in Perfect Competition The supply curve of the perfectly competitive firm is the MC curve. In the short run: The MC curve above min AVC In the long run: The MC curve above min ATC Shutdown point: the minimum point on the firm’s average variable cost curve; if the price falls below this point, the firm shuts down production in the short run.
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This note was uploaded on 11/05/2009 for the course BIO econ 001 taught by Professor Stein during the Spring '09 term at UPenn.

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CH 11 outline - Competition Perfectly competitive market no...

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