ECON 1050 Lecture Notes - Perfect Competition, Social Cost, Monopolistic Competition

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A market structure in which large # of firms compete. Each firm produces differentiated product firms compete on product quality, price, marketing firms are free to enter/ exit industry. Small market share- each firm supplies small part of total industry output. Thus each firm has limited ability to influence price of product. Ignore other firms- firms only sensitive to average market price of product. Collusion impossible- many firms mean difficult to conspire and fix higher price. Product differentiation- makes product that is slightly different from competition. Quality- physical attributes that make it different from products of other firms. Price- downward sloping demand curve, so they can set own price and output. No barrier to enter and exit in long run cannot make an economic profit in long run. Examples: household furniture, lighting fixtures, paint, bakeries, sports and athletic things, boat building, plastic bags, clothing, etc. Economic profit maximized when marginal cost equals marginal revenue.

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