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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
• 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
curve. The firm
quantity of output
at which MR=MC Resource Allocative Efficiency
and Productive Efficiency
• A firm that produces the quantity of output
at which P...
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