Lecture 07 - ECO100

Lecture 07 - ECO100 - ECO ECO 100Y Introduction to...

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ECO 100Y Introduction to n m i Economics Lecture 7: h t C titi Short Short-Run Competitive Run Competitive Equilibrium © Gustavo Indart Slide 1
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Market Structure ± A market structure is mainly determined by two factors: e f firms in an industry ¾ The number of firms in an industry ¾ By the characteristic of the product (whether homogeneous or heterogeneous ) ± Different market structures: ¾ 1 firm Æ Monopoly f i ¾ 2 firms Æ Duopoly ¾ Few firms Æ Oligopoly ¾ Many firms: y ² Homogeneous product Æ Perfect competition ² Heterogeneous product Æ Imperfect competition pp © Gustavo Indart Slide 2
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Assumptions of Perfect Competition ± There are many firms in the industry selling a omogeneous product homogeneous product ± There are many buyers ± There are no restriction to entry into the industry ± Firms already in the industry have no advantage over potential entrants ± Firms and buyers are completely informed about the ri f th pr d t f h firm in th ind tr © Gustavo Indart Slide 3 prices of the products of each firm in the industry
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The Firm’s Demand Curve ± Since firms are price takers in a perfectly competitive market, they can sell any output at the given price g ¾ That is, since the output of any firm is too small lative to the industry’s output, firms can sell any relative to the industry s output, firms can sell any output without affecting the market price ± Since firms receive the same fixed price for any level of output, perfectly competitive firms face a horizontal emand curve at the level of the market price demand curve at the level of the market price ¾ That is, competitive firms face a perfectly elastic d ( l t i i t © Gustavo Indart Slide 4 demand curve (elasticity = )
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dustry and Firm Demand Curves Industry and Firm Demand Curves Industry Firm PP S P 1 P 1 d D © Gustavo Indart Slide 5 Q q
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Firms Are Price Takers ± Suppose that there are 1,000 firms of equal size producing a particular good ± Even if one firm were to double its output (which is a large
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Lecture 07 - ECO100 - ECO ECO 100Y Introduction to...

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