CHAPTER 14 - CHAPTER 14: FIRMS IN COMPETITIVE MARKETS Main...

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1 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. Exercise no.7
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This note was uploaded on 12/16/2010 for the course ECON 102 taught by Professor Clague during the Fall '08 term at San Diego State.

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CHAPTER 14 - CHAPTER 14: FIRMS IN COMPETITIVE MARKETS Main...

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