Chapter 8 Notes

Chapter 8 Notes - Chapter 8: Perfect Competition The...

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Chapter 8: Perfect Competition The characteristics of a market that influence how trading takes place o How many buyers and sellers? o Products: standardized or significantly different? o Barriers to entry/exit? Types of Markets o Perfect Competition o Monopoly o Monopolistic competition o Oligopoly Perfect Competition o Many buyers and sellers, therefore no individual decision maker can significantly affect the price of the product o Standardized product; therefore buyers do not perceive differences between the products o Sellers can easily enter/exit the market; there are no significant barriers to discourage new entrants The Competitive Firm’s Demand Curve o Horizontal Demand Curve-perfect elastic- at the market price o Output is standardized o It is a price taker, the price of its output is given o Decision: How much output to produce and sell Cost and Revenue Data Marginal revenue is the market price
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Marginal revenue curve is the demand curve facing the firm, it is a horizontal line at the market price Profit Maximization Total Profit = TR-TC MR>MC increase output Maximize profit: MR=MC Measure total profit (profit per unit = P – ATC) If P > ATC The firm earns profit If P <ATC the firm suffers a loss
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This note was uploaded on 02/04/2011 for the course ECON 011 taught by Professor Yezer during the Fall '07 term at GWU.

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Chapter 8 Notes - Chapter 8: Perfect Competition The...

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