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2011-10-02 22-41-48 34

2011-10-02 22-41-48 34 - CI-I#ll FIRMS IN PERFECTLY...

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Unformatted text preview: CI-I#ll FIRMS IN PERFECTLY COMPETITIVE MARKETS Firms in a perfectly competitive industry are unable to control the prices of the products they sell and are unable to earn an economic profit in the long run. There are two main reasons for this result: 0 Firms in these industries sell identical products. I It is easy for new firms to enter these industries. Perfectly competitive market: The three conditions that make a market perfectly competitive are: 1. Many buyers and sellers. 2. All firms selling identical products, and 3. No barriers to new firms entering the market. Price taker: A buyer or seller that is unable to affect the market price. A perfectly competitive firm faces a horizontal demand curve: A firm in a perfectly competitive market is selling exactly the same product as many other firms. Therefore, it can sell as much as it wants at the current market price, but it cannot sell anything at all if it raises the price by even one cent. As a result, the demand curve for a perfectly competitive finn’s output is a horizontal line. F'gge 11.1 ...
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