ECON 211 Lecture Notes - Lecture 8: Marginal Revenue, Market Power, Profit Maximization
Document Summary
Because each individual irm sells a suiciently small proporion of total market output, its decisions have no impact on market price. Price taker irm that has no inluence over market price and thus takes the price as given. In contrast, when products are heterogeneous, each irm has the opportunity to raise its price above that of its compeitors without losing all of its sales. The assumpion of product homogeneity is important because it ensures that there is a single market price, consistent with supply-demand analysis. Free entry (or exit) condiion under which there are no special costs that make it diicult for a irm to enter (or exit) an industry. With free entry and exit, buyers can easily switch from one supplier to another, and suppliers can easily enter or exit a market. Many markets are highly compeiive in the sense that irms face highly elasic demand curves and relaively easy entry and exit.
