What does this mean why is a perfectly competitive

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

Unformatted text preview: o control the price of the product it sells. What does this mean? • Why is a perfectly competitive firm a price taker? • The horizontal demand curve for the perfectly competitive firm signifies that it can not sell any of its product for a price higher than the market equilibrium price. Why can’t it? • Suppose the firms in a real-world market do not sell a homogenous product. Does it necessarily follow that the market is not perfectly competitive? Perfect Competition in the Short Run • The firm will continue to increase its quantity of output as long as marginal revenue is greater than marginal cost. • The firm will stop increasing tits quantity of output when marginal revenue and marginal cost are equal • The Profit – Maximization Rule: Produce the quantity of output at which MR=MC The Quantity of Output the Perfectly Competitive Firm Will Produce The firm’s demand curve is horizontal at the equilibrium price. Its demand curve is its marginal revenue curve. The firm produces that quantity of output at which MR=MC Resource Allocative Efficiency and Productive Efficiency • A firm that produces the quantity of output at which P...
View Full Document

This note was uploaded on 09/16/2012 for the course ECONOMICS 90 taught by Professor Srinivas during the Spring '12 term at SMU.

Ask a homework question - tutors are online