MGCR 293 Lecture Notes - Lecture 7: Average Variable Cost, Monopolistic Competition, Perfect Competition

• School: McGill University
• Department: Management Core
• Course: MGCR 293
• Professor: Kamal Salmasi

Document Summary

C hap a ge r i al e. Perfect competition: many small firms that produce standardized products. There are low barriers to entry and no non-price competition (i. e. , advertising). Monopolistic competition: firms produce slightly different products from each other and there are low barriers to entry. There is a lot of non-price competition in order to differentiate the products. Entry is blocked and they use non- price competition to stimulate demand. Key characteristics of perfect competition: managers have no control over the price of their product. They, however, choose to produce at the profit max level by taking the price as given from the market. Demand curves: for a firm: demand curve is horizontal (constant, for the entire industry: demand curve is downward sloping. Output decision of a perfectly competitive firm: profit-maximizing quantity is given by mr=mc. In perfect competition, tr=pq => dtr/dq = p (since p is already set & constant since the demand curve is horizontal)