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Unformatted text preview: 14 Book Notes – ECON 201 FIRMS IN COMPETITIVE MARKETS Many firms supply gas to the local market, but only one firm supplies water. If a firm can influence the market price of the good it sells, it is said to have market power . WHAT IS A COMPETITVE MARKET? Competitive Market: a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker. ( AKA) Perfectly Competitive Market 2 characteristics: 1. There are many buyers and many sellers in the market 2. The goods offered by the various sellers are largely the same 3. Firms can freely enter or exit the market Each buyer and seller takes the market price as given. If there is free entry and exit in a competitive market, it is a powerful force shaping the long-run equilibrium. A firm in a competitive market tries to maximize profit In a competitive market, the total revenue is proportional to the amount of output. Average Revenue: Total Revenue / Quantity Sold...
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