Econ 211 Lecture 13c Perfect Competition

Econ 211 Lecture 13c Perfect Competition - set its own...

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Perfect Competition: -many firms sell identical products to many buyers -no restrictions on entry or exit -established firms have no advantage over new ones (no “first-mover adv”) -sellers and buyers are well informed about prices Important: goods must be identical, so that any manufacturers’ goods work as perfect substitutes. Also, perfect competition would tend to arise when firms in the industry have small minimum efficient scales relative to the demand for the good or service. The way to think of this is firms in perfect competition are price takers (as opposed to price searchers). A price taker is an agent that cannot influence market price, and must
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Unformatted text preview: set its own price at the market level. See graphs. The firm takes the price from the given market supply and demand. That becomes the firm’s MR. Here, p=$25=MR Decisions in SR: 1. Produce or shut down 2. If produce, then what quantity. Decisions in LR: 1. Change plant size? 2. Stay or exit? Shutdown question (SR): If price goes below the minimum of AVC, the firm will choose to not produce. The shutdown point is the output and price at which the firm just covers total variable cost. LR adjustments: If firms are making profit in an industry, there is incentive for entry. If short-run profits = 0, then it is in equilibrium. Graph....
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