Topic07_Comp_Market

Topic07_Comp_Market - Topic 07 07 Competitive Market COMM...

Info iconThis preview shows pages 1–8. Sign up to view the full content.

View Full Document Right Arrow Icon
Topic 07 Competitive Market COMM 295 r atna hrestha Dr. Ratna K. Shrestha
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Perfectly Competitive Markets z Basic assumptions: 1. Price taking : The individual firm/buyer sells/buys a very small share of the total arket output and therefore cannot market output and, therefore, cannot influence market price. roduct homogeneity The products of all 2. Product homogeneity : The products of all firms are perfect substitutes. . ree entry and exit no costs that make it 3. Free entry and exit : no costs that make it difficult for a firm to enter (or exit) an industry. 4. Buyers and sellers have perfect information . 2 y p
Background image of page 2
Perfectly Competitive Market e ect y Co pet t e a et Low ansaction costs f buying and selling z 5 . Low transaction costs of buying and selling. ompetitive Firm z A Competitive Firm ± Since a competitive firm can sell all of its roducts at the market price it faces a products at the market price, it faces a horizontal demand curve. it increases the price slightly it will lose ± If it increases the price slightly, it will lose all the customers. 3
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
he Competitive Firm The Competitive Firm emand urve faced by the whole market is z Demand curve faced by the whole market is downward sloping z his shows that consumers’ total This shows that consumers total consumption level increases with decreasing price. z Let’s denote ± Market output (Q) and firm output (q) ± Market demand (D) and firm demand (d) 4
Background image of page 4
he Competitive Firm The Competitive Firm Price Firm Industry Price S d $4 $4 D 5 Output (bushels) 100 200 Output (bushels) 100
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
rofit Maximization Profit Maximization Profit for the firm = Revenue - Costs q C q R q = ) ( ) ( ) ( π cq pq = z Where c = ATC z Slope of revenue curve = MR z Slope of total cost curve = MC 6
Background image of page 6
Marginal Revenue, Marginal ost and Profit Maximization Cost, and Profit Maximization z
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Image of page 8
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 23

Topic07_Comp_Market - Topic 07 07 Competitive Market COMM...

This preview shows document pages 1 - 8. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online