COMM 295 Lecture Notes - Lecture 6: Perfect Competition, Profit Maximization, Economic Surplus
Document Summary
: perfect competition (long & short run) + consumer/producer surplus. Perfect competition is a market structure in which buyers and sellers are price takers they have no control over market price. A perfectly competitive firm is a firm that is so small relative to the market that it takes the market price as given: the firm is a price-taker. We sometimes use the term competitive instead of perfectly competitive . We will assume all of these conditions are present in perfect competition. Thus perfect competition means that firms are price-takers and conditions a-e hold. = r c = pq (ac)q= (p ac)q. Any firm maximizes profit where mr = mc. R = pq, but p is taken as given a constant from the point of view of the firm. Therefore, the profit-maximizing condition is p = mc (or mc = p). Units"per"period the firm produces q* and earns profit equal to the area of the shaded region:(p-ac)q*
