Perfect Competition

Perfect Competition - 121 Chapter12 PerfectCompetition Firms&MarketStructure Marketstructure =/industryinwhicha firmoperates,including o o

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Chapter 12 Perfect Competition Firms & Market Structure Market structure   = Physical characteristics of the market/industry in which a  firm operates, including o Number of firms in the market o Barriers to entry o Communication among firms 12-1
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There are a number of market structures: Two extremes are: Perfect competition Many small firms No barriers Communications No strategic behavior Identical products (homogenous) Many buyers Perfect monopoly  One large firm 12-2
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Examples of Perfect Competition Wheat farming Fishing Lawn service Dry cleaning Laundry cleaner 12-3
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Economic Profit: Total Revenue - Total Costs Total Revenue (TR):  Value of a firm’s sales P x Q Average Revenue (AR): TR/Q Revenue per unit sold = Price (since TR = P x Q) Price = TR/Q = AR Marginal Revenue (MR): Δ TR/ ΔQ The change in total revenue when sales change by 1  unit 12-4
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MR = P 12-5
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Total Revenue, Marginal Revenue, Average Revenue and Profit for a  Perfectly Competitive Firm Q TC P TR P x Q TR-TC Profit ATC MC MR 0 9.00 5 0 -9 5 1 13.00 5 5 -8 5 2 16.00 5 10 -6 5 3 18.00 5 15 -3 5 4 19.00 5 20 1 5 5 21.20 5 25 3.8 5 6 24.10 5 30 5.9 5 7 29.00 5 35 6 5 8 36.00 5 40 4 5 12-6
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9 46.00 5 45 -1 5 10 60.00 5 50 -10 5 Firms in perfectly competitive markets face perfectly elastic (horizontal) demand  curves Where does the price come from? Although each firm feels it is unable to influence the price, together the market  demand is the usual downward sloping curve.
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This note was uploaded on 04/02/2010 for the course ECON econ101 taught by Professor Trimarchi during the Fall '09 term at Waterloo.

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Perfect Competition - 121 Chapter12 PerfectCompetition Firms&MarketStructure Marketstructure =/industryinwhicha firmoperates,including o o

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