COMM 295 Lecture Notes - Lecture 1: Jet Fuel, Harmony Airways, Fixed Cost
Document Summary
One firm"s output is a perfect substitute for another firm"s output and each firm is a small part of the market. These points imply that each firm cannot unilaterally influence the market price at which it can sell its good or service. It must accept, or take the market equilibrium price hence the term, price taker. The market demand curve for the goods and services in a perfectly competitive market is downward sloping. However, no single firm in this market can influence the price at which it sells its output. This point means a firm that is a price taker must take the equilibrium market price as given, and the firm faces a perfectly elastic demand. A perfectly competitive firm"s demand curve is a horizontal line at the market price. This result means that the price it receives is the same for every unit sold.
