MAE101 Lecture Notes - Lecture 8: Sunk Costs, Market Power, Perfect Competition

• School: Deakin University
• Department: Business and Law
• Course: MAE101
• Professor: Ratcliffe

Document Summary

Characteristics of perfect competition: many buyers and many sellers, the goods offered for sale are largely the same, firms can freely enter or exit the market. Be(cid:272)ause of (cid:1005) a(cid:374)d (cid:1006) ea(cid:272)h (cid:271)uye(cid:396) is a (cid:858)p(cid:396)i(cid:272)e take(cid:396)(cid:859) takes the price as given. An individual firms actions has no influence on the market price. If you put your price up, buyers will go to a different seller. You can sell all you want at the market price so there is no reason to decrease your price. In a perfectly competitive market, our firm has no control over price we have to take the market p(cid:396)i(cid:272)e (cid:374)o (cid:373)atte(cid:396) ho(cid:449) (cid:373)u(cid:272)h (cid:449)e sell. The fi(cid:396)(cid:373)(cid:859)s i(cid:374)(cid:272)o(cid:373)e the(cid:396)efo(cid:396)e is depe(cid:374)de(cid:374)t o(cid:374) ho(cid:449) (cid:373)u(cid:272)h (cid:395)ua(cid:374)tity we sell. Analysing revenue: total revenue (p x q, average revenue, marginal revenue. Tells us how much revenue a firm receives for the typical unit sold. In perfect competition, average revenue equals the price of the good.