ECON 1000 Lecture Notes - Lecture 8: Variable Cost, Market Power, Marginal Revenue
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ECON 1000 Full Course Notes
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Many rms sell identical products to many buyers. There are no restrictions to entry into the industry. Established rms have no advantages over new ones. Sellers and buyers are well informed about prices. The rm"s minimum e cient scale is small relative to market demand, so there is room for many rms in the market. Each rm is perceived to produce a good or service that has no unique characteristics, so consumers don"t care which rm"s good they buy. In perfect competition, each rm is a price taker. A price taker is a rm that cannot in uence the price of a good or service. No single rm can in uence the price it must take the equilibrium market price. Each rm"s output is a perfect substitute for the output of the other rms, so the demand for each rm"s output is perfectly elastic.
