ECON 2010U Lecture 9: Chapter 12 - Perfect Competition
Document Summary
Many firms sell identical products to many buyers. There are no restrictions to entry into the industry. Established firms have no advantages over new ones. Sellers and buyers are well informed about prices. The firm"s minimum efficient scale is small 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 unique characteristics, so consumers don"t care which firm"s good they buy. In perfect competition, each firm is a price taker. A price taker is a firm that cannot influence the price of a good ir service. No single firm can influence the price it must take the equilibrium market price. The goal of each firm is to maximize economic profit, which equals total revenue minus total cost. A firm"s total revenue equals price, p, multiplied by quantity sold, q, or p q.