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CHAPTER 14: FIRMS IN COMPETITIVE MARKETS
Main idea: Perfectly competitive (PC) firms take prices as given since they don’t have market
power.
However, they still need to decide how much output to produce.
In this chapter, we
examine how PC firms make this decision.
1.-
What are some of the characteristics of a PC firm?
What constitutes a PC market?
a)
PC markets are characterized by having
MANY BUYERS AND MANY SELLERS
.
b)
Firms in a PC market (i.e. PC firms) produce HOMOGENOUS or
IDENTICAL goods
.
Because theRE are many firms producing the same item, no single firm has the potential
of affecting market prices on its own.
That is, firms have
NO MARKET POWER
.
c)
Firms can freely entry and exit the market, i.e. there are
NO MARKET BARRIERS
.
In addition to the aforementioned characteristics, PC firms have:
d)
Average revenue (AR) = P
, as all other firms.
e)
Marginal revenue (MR) = P
as well.
This is because the revenue from the sale of each
additional unit of output is nothing but the P that the PC firm charges for each unit of
output.
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- Fall '08
- Clague
- Economics, Microeconomics, Supply And Demand, PC Firms
-
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