ECON20002 Lecture Notes - Lecture 15: Economic Surplus, Perfect Competition, Perfect Information
Document Summary
Level of output that minimises average cost relative to size of the market demand. At price (p*) mes is relatively close to quantity demanded (q1) Thus, p* is only feasible if we allow one firm to have a large market share. Problematic as they"re no longer required to charge p* Allowing competition will lead to current firm(s) making a loss. Could charge higher price lower consumer surplus. However, don"t want it to set whatever price it wants protect consumer surplus. Small market where mes is close to total market size. Natural way to organise market is to allow one firm to dominate market share. But regulate its price to make sure consumer surplus is maximised. A perfectly competitive market has four key features: Note: because of collusion, the presence of many firms doesn"t guarantee perfect competition. Each individual firm sells a sufficiently small proportion of total market output. Hence, its decisions will have no impact on market price.