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Ch09 - Chapter 9 Perfectly Competitive Markets Perfect...

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Chapter 9 Perfectly Competitive Markets
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Perfect Competition Four characteristics of perfectly competitive markets: The industry is fragmented . Fragmented industry: An industry that consists of many small buyers and sellers. Sellers and buyers act as price takers . Price taker: A seller of a buyer that takes the price of the product as given when making an output decision or a purchase decision. Firms produce undifferentiated products . Undifferentiated products: Products that consumers perceive as being identical.
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Perfect Competition Consumers have perfect information about prices all sellers in the market charge. Perfect information about prices: Full awareness by consumers of the prices charged by all sellers in the market. Law of one price: The occurrence of all transactions between buyers and sellers at a single, common market price. The industry is characterized by equal access to resources . Equal access to resources: A condition in which all firms have access to the same technology and inputs. Free entry: Any potential entrant has access to the same technology and inputs that existing firms have.
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Price Taking Firm’s Profit Maximization Consider a rose-growing firm in perfect competitive market. The goal of the firm is to maximize its profit π = TR TC , where TR = P × Q . The firm takes the market price P as given. Suppose the market price for fresh-cut roses is P = $1.00, and also suppose TR , TC and π are as in the graph. MR = ΔTR / ΔQ ,
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Ch09 - Chapter 9 Perfectly Competitive Markets Perfect...

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