A. Perfect competition: only market where firms have no control of the price. The
price is set in the market and price-taking firms produce the output that
maximizes economic profit.
B. Optimal output rule:produce the quantity where
Perfectly competitive firms are price takers. They cannot affect the price of their
product; it is set in the market.
To maximize profit, the firm must produce the quantity of output where marginal revenue
is equal to marginal c
Characteristics of Oligopolies:
A Few Large Producers
Identical or Differentiated Products
High Barriers to Entry
Control Over Price (Price Maker)
Firms use Strategic Pricing
Production of goods generates pollution, which is a cost upon society. But those goods
provide benefit to the consumers who
enjoy utility from them.
Marginal social cost (MSC): the
additional costs imposed on society