PerfectCompetition

PerfectCompetition - PerfectCompetition Chapter to Click 12...

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Click to edit Master subtitle style 11 Perfect Competition Chapter 12
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Course Outline {93B6C7DD-B656-4597-8DAF-0C35C7E5FCD7} Microeconomics {2F1386C2-2D7B-40FE-B01B-789D9D1F FED} Introduction is Economics? {C3DD0A5A-CFC5-49DC-BC24-FE6567 A7C25} How Markets Work nd and supply {0A9747AF-81F6-41D9-BF95-F16025A9C 87} Additional Topics {526 80CA-28F7-4D30-8963-9EAC0FC8C1CD} Households’ Choice {0B3 EF3F-5 21-4CF4-9038-24F09EDD2BF9} Elasticity {B19 F212-906B-43E5-ACAB-936ECB65451A} Efficiency and Equity {FC D720 -065E-42DC-8D70-A32C148C7AB1} Government Actions in Markets {C3AE548A-68A6-47C9-BEFA-916A6495CE7F} Firms and Markets {FCE914DC-D8DC-4B5E-AC43-29404 C985BF} Utility and Demand references, and Choices onomic Problem put and Costs ct Competition onopoly istic Competition Oligopoly 22
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33 Lecture Outline I. What is perfect competition? II. Short-run 1. Firm’s decision: production rate, shut down condition 2. Market equilibrium III. Long-run 1. Firm’s decision: plant size, entry/exit ; and market equilibrium 2. Changes in equilibrium, long-run supply curve IV. Another look at the efficiency of perfect competitive markets
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44 I. Competition n Perfect competition is an industry in which: q Many firms sell identical products to many buyers. q There are no restrictions to entry into the industry. q Established firms have no advantages over new ones. q Sellers and buyers are well-informed about prices.
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55 I. Competition n How Perfect Competition Arises q Perfect competition arises: n MES << market demand n Identical product
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66 I. Competition n Price Takers q In perfect competition, each firm is a price taker. q Each firm’s output is a perfect substitute for the output of the other firms, so the demand for each firm’s output is perfectly elastic .
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77 I. Competition n Economic Profit and Revenue q The goal of each firm is to maximize economic profit , which equals total revenue minus total cost . q A firm’s total revenue equals price, P , multiplied by quantity sold, Q , or P & Q .
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88 I. Economic Profit and Revenue Marginal revenue (MR) q Change in total revenue resulting from a one-unit increase in quantity sold. In perfect competition, Price = MR
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99 I. Economic Profit and Revenue Suppose Campus Sweaters sells its sweaters in a perfectly competitive market.
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1010 T R D S I. Demand, Price, and Revenue Quantity (thousands of sweaters per day) Quantity (sweaters per day) Quantity (sweaters per day) Price (dollars per sweater) Price (dollars per sweater) Total revenue (dollar per day) 0 9 20 0 10 20 0 9 20 2 5 5 0 2 5 22 5 5 0 M R a Market demand curve Sweater market Campus Sweaters’ demand and marginal revenue Campus Sweaters’ total revenue Campus Sweaters’ demand curve
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1111 I. The Firm’s Decisions in Perfect  Competition n A perfectly competitive firm faces two constraints: q A market constraint summarized by the market price and the firm’s revenue curves q A technology constraint summarized by the firm’s product curves and cost curves (like those in Chapter 11)
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This note was uploaded on 06/16/2011 for the course ECON 110 taught by Professor Tan during the Spring '07 term at HKUST.

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PerfectCompetition - PerfectCompetition Chapter to Click 12...

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