Economics 1021A/B Lecture Notes - Lecture 17: Perfect Competition, Marginal Revenue, Market Power

• School: Western University
• Department: Economics
• Course: Economics 1021A/B
• Professor: Nicholas Kahnert

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. Minimum efficient scale is the smallest output at which long-run av reaches its lowest level. 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 or service. No single firm can influence the price it must take the equilibrium market price. Each firm"s output is a perfect substitute for the output of the other firms, so the demand for each firm"s output is perfectly elastic.