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Chapter 14 - Outline Wednesday 10:05 AM I I A Perfectly...

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Outline Wednesday, October 06, 2010 10:05 AM I. A Perfectly Competitive Market I.A. Perfectly Competitive Market: a market in which economic forces operate unimpeded I.A.1. The Necessary Conditions for Perfect Competition I.A.1.a. Both buyers and sellers are price takers. I.A.1.a.i. Price taker: a firm or individual who take the price determined by market supply and demand as given. I.A.1.a.ii. Supply and demand determine the price I.A.1.a. The number of firms is large I.A.1.a.i. It's so large that what one firm does has not affect on the other firms. I.A.1.a. There are no barriers to entry I.A.1.a.i. Barriers to entry: social, political, or economic impediments that prevent firms from entering the market. I.A.1.a.ii. Anyone can start a business and produce a product with no one stopping them. I.A.1.a. Firms' products are identical I.A.1.a.i. Each firms output is exactly the same as everyone else's. I.A.1.a. There is complete information I.A.1.a.i. Firms and consumers know all about the market: price, products, and available technology, etc. I.A.1.a.ii. No firm has any competitive advantage over another. I.A.1.a. Selling firms are profit-maximizing entrepreneurial firms. I.A.1.a.i. Firms must seek maximum profit and no other form of income. I.A.1. Definition of Supply and Perfect Competition I.A.1.a. They ask how much should I supply, given the market price. I.A.1.b. Condition 2 doesn't allow the firms to collude. I.A.1.c. Condition 3 - 5 make is impossible to forget about the other firms waiting for them to fail and take their supply.
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