REAL 1820 Lecture Notes - Lecture 13: Perfect Competition, Market Power, Economic Equilibrium

• School: University of Guelph
• Department: Real Estate and Housing
• Course: REAL 1820
• Professor: Emma Allen- Vercoe

Document Summary

Many firms selling identical products to many buyers. No restrictions on entry into the market. Established firms have no advantage over new ones. Sellers and buyers are well informed about prices. Arises if the minimum efficient scale is small relative to market demand room for many firms. Each firm is a price taker a firm cannot influence the price of a good. Ea(cid:272)h fir(cid:373)"s output is a perfe(cid:272)t su(cid:271)stitute for the output of other fir(cid:373)s: demand for ea(cid:272)h fir(cid:373)"s output is perfe(cid:272)tl(cid:455) elasti(cid:272, market demand is not perfectly elastic, bc a sweater is a sub for some other good. Goal of each firm is to maximize economic profit = (cid:1846)(cid:1841)(cid:1846) (cid:1844)(cid:1848)(cid:1840)(cid:1847) (cid:1846)(cid:1841)(cid:1846) (cid:1841)(cid:1845)(cid:1846) *tc = opportunity cost of production, including normal profit, profit earned on average by an entrepreneur* A fir(cid:373)"s (cid:373)argi(cid:374)al re(cid:448)e(cid:374)ue = the (cid:373)arket pri(cid:272)e. Must decide: how to produce at minimum cost, what quantity to produce, and to enter/exit a market.