lecture11 - Economics 103 Lecture 11 The Competitive Firm...

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Economics 103 Lecture # 11 The Competitive Firm
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The last step in completing our model is to specify a type of market behavior on the part of firms . We are going to start by assuming firms are competitive. The Competitive Firm: a. Each firm takes the price as given. b. Each firm ignores the action of rival firms. c. No firm engages in strategic behavior. d. The price is set in the “market”.
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Does such a firm exist? Probably true for a wheat farm. Or for your average small firm.
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But these assumptions are not true for large firms: We’ll talk about these firms later.
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When a firm is a price taker, they are soooo small changes in their output have no impact on the market price. They can produce as much as they want, and the price never changes. This means the demand curve they face is treated as infinitely elastic. Why does MR=AR? What is MR? AR?
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A firm wants to Maximize Profit . Profit = Total Revenue – Total Costs. A necessary condition for maximizing profits is the following :
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This note was uploaded on 06/24/2011 for the course ECON 103 taught by Professor Hanafiahharvey during the Spring '08 term at Simon Fraser.

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lecture11 - Economics 103 Lecture 11 The Competitive Firm...

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