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School
University of Alberta
Department
Economics
Course
ECON101
Professor
Gordon Lee
Semester
Fall

Description
Econ 101 Final Material Perfect Competition Characteristics: 1. All firms produce a homogenous product. 2. Consumers and producers posses relevant information. 3. Many consumers and many producers. 4. Freedom of entry and freedom of exit. 5. Individual firms are price takers. This means individual firms take the price as given, and therefore the price remains the same.Aperfectly competitive firm faces a perfectly elastic demand curve. Note: R1 = Pq R2 = P(q+1) MR = R2 – R1 = P(q+1) – Pq MR = Pq + p – Pq So, margin revenue (MR) = price for every quantity. Profit Maximization in the Short Run:Any firm maximizes its profits at the quantity where MR = MC. For a perfectly competitive firm, it maximizes its profits at the quantity where P = MC since P is always equal to MR. In summary, 1. Find the quantity where P = MC call it q* 2. Check the shut down rule; 1. If P >AVC the firm produces q* 2. If P
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