611512 - 12-1Perfect Competition♦Market structure in the...

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Unformatted text preview: 12-1Perfect Competition♦Market structure in the output market.–Number of firms–Type of product–Ease of entry/exit–Market info and knowledge♦Price and output are strongly related to market structure.12-2Perfect Competition♦Homogeneous or standardized product♦Enough firms so that each firm is small relative to the market. Thus, no control over price.♦No obstacles to entry and exit.♦Perfect info about product and market. Best method of production & market price. Also potential entrants know whether existing firms earn economic profits. 12-3Firm’s Demand and Perfect Competition♦Since each firm is a price-taker, its demand curve is horizontal at the market price. It can also said to be perfectly elastic at the market price.PQQPSDPDPMarketFirm12-4Firm’s Demand♦The firm’s demand curve in perfect competition is also the –MR curve – since each additional unit adds a constant amount (Price) to Total revenue(TR)–Average Revenue curve – since AR is TR/Q12-5Profit Maximization in the Short...
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611512 - 12-1Perfect Competition♦Market structure in the...

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