ECON101 Lecture Notes - Lecture 9: Market Power, Perfect Competition, Takers

• School: University of Waterloo
• Department: Economics
• Course: ECON101
• Professor: Corey Van De Waal

Document Summary

A(cid:396)ises (cid:449)he(cid:374) the fi(cid:396)(cid:373)"s (cid:373)i(cid:374)i(cid:373)u(cid:373) effi(cid:272)ie(cid:374)t s(cid:272)ale is s(cid:373)all relative to market demand, so there is room for many firms in the market. Each firm is perceived to produce a good or service that has no u(cid:374)i(cid:395)ue (cid:272)ha(cid:396)a(cid:272)te(cid:396)isti(cid:272)s, so (cid:272)o(cid:374)su(cid:373)e(cid:396)s do (cid:374)ot (cid:272)a(cid:396)e (cid:449)hi(cid:272)h fi(cid:396)(cid:373)"s good they buy (ex: wheat) In perfect competition, each firm is a price taker. Ea(cid:272)h fi(cid:396)(cid:373)"s output is a perfect substitute for the output of the othe(cid:396) fi(cid:396)(cid:373)s, so the de(cid:373)a(cid:374)d fo(cid:396) ea(cid:272)h fi(cid:396)(cid:373)"s output is perfectly elastic. In a perfectly competitive market, a firm, as a price taker, faces perfectly elastic demand as a firm must take the equilibrium market price as given. Economic profit = total revenue total cost: total cost opportunity cost which includes normal profit. To maximize economic profit, a firm must decide: how to produce at the minimum cost, what quantity produced or how much to produce, whether to enter or exit a market.