ECON-E 201 Lecture Notes - Lecture 23: Market Power, Perfect Competition, Marginal Revenue
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ECON-E 201 Full Course Notes
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Characteristics of perfect competition: perfect competition- market structure in which decisions of individual buyers/sellers have no effect on market price, price taking- take price of firm"s product as given, because firm cannot influence its price. Firm can sell as much as it wants at going market price. No incentive to sell at lower price. Attempts to charge higher price result in no sales. No single firm can influence price; must take equilibrium market price. Each firm"s output is perfect substitute for those of other firms; demand for each firm"s output is perfectly elastic: many buyers/sellers, homogeneous (identical) products, no barriers to entry/exit, buyers and sellers have equal access to information, ex. Perfectly competitive firm is a price taker (ie. must sell for ) Firm"s demand curve perfectly elastic; it will sell all units for . Will not be able to sell at higher price. Will not choose to sell more units at lower price.
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