ECON 1000 Lecture Notes - Lecture 16: Perfect Competition, Market Power, Marginal Cost
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Econ1000 lecture 16 chapter 12: perfect competition. Objectives: define perfect competition, price and output determination in perfect competition, shut down point, enter and exit, effects of a change in demand and of a technological advancement, perfect competition and efficiency. The perfectly competitive form makes two decisions in the short-run: whether to produce or to shut down. If the decision is to produce, what quantity to produce. Long-run: whether to increase or decrease its plant size, whether to stay in the industry or leave it. The firm"s decision in perfect competition: marginal analysis. Profit is maximized by producing the output at which marginal revenue (mr) equals marginal cost (mc). Mr = mc: when mr > mc, profit increases if q decreases, when mr < mc, profit decreases if q increases, when mr = mc, profit decreases if q increases or decreases.