Lecture16 - Lecture 16 Competitive markets Profit...

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Lecture 16 Competitive markets Profit maximization: marginal revenue Short-run supply decisions Industry supply and input prices
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What is a competitive market Perfect competition rests on three assumptions: Price taking behavior by firms Each firm takes the market price as given. Each firm sells a sufficiently small share of the total to have no appreciable impact on demand as far as it can tell. Product homogeneity Products in the market are perfect substitutes: consumers can switch costlessly between them. This supports price-taking and cost-minimization behavior: only the cheapest firms survive. Free entry and exit Firms will enter to take advantage of abnormal returns; sellers that make less than normal returns will exit. No constraints on expansion.
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Examples Perfect competition Agriculture? Grocery stores? Airlines? Gas stations? Grocery stores with club cards?
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This note was uploaded on 01/17/2012 for the course ECON 100A taught by Professor Safarzadeh during the Fall '09 term at UC Irvine.

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Lecture16 - Lecture 16 Competitive markets Profit...

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