ECON101 Lecture Notes - Lecture 12: Demand Curve, Product Differentiation, Market Power

• School: University of Waterloo
• Department: Economics
• Course: ECON101
• Professor: Predrag Rajsic

Document Summary

Market in which: many firms sell identical products to many buyers, no restrictions to entry into the industry, established firms have no advantages over new ones, sellers and buyers are well informed about prices. Each firm is a price taker in perfect competition. Price taker: a firm that cannot influence the price of a good or service: demand of each firm"s output is perfectly elastic. No single firm can influence price must (cid:498)take(cid:499) equilibrium market price. Firm"s output is a perfect substitute for the output of other firms. Goal of each firm: maximize economic profit (total revenue total cost) Economic profit and revenue: total cost: opportunity cost of production (includes normal profit, total revenue = price (p) x quantity sold (q, marginal revenue = change in total revenue that results from a one-unit increase in quantity sold. Firm must decide: how to produce at minimum cost, what quantity to produce, whether to enter/exit a market.