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Chapter 12 - Perfect Competition.docx

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University of Waterloo
ECON 101
Corey Van De Waal

Chapter 12 Perfect Competition What Is Perfect Competition Perfect competition is a market in whichMany firms sell identical products to many buyersThere are no restrictions to entry into the industryEstablished firms have no advantages over new onesSellers and buyers are well informed about prices perfect information How Perfect Competition Arises Perfect competition arises whenThe firms minimum efficient scale is small relative to market demand so there is room for many firms in the marketEach firm is perceived to produce a good or service that has no unique characteristics so consumers dont care which firms good they buy Price Takers In perfect competition each firm is a price taker A price taker is a firm that cannot influence the price of good or service There is no single firm that can influence the princetherefore it must take the equilibrium market price Each firms output is a perfect substitute for the output of the other firms so the demand for each firms output is perfectly elastic Economic Profit and Revenue The goal of each firm is to maximize economic profit which eq
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