Economics 1021A/B Lecture Notes - Market Power, Perfect Competition, Invisible Hand

• School: Western University
• Department: Economics
• Course: Economics 1021A/B
• Professor: Arvin Dar

Document Summary

Topic 8 perfect competition: introduction, possible sr equilibria for a firm, sr s curve for a firm and for the industry, lr equilibrium for this market structure (for firms operating under it, question of efficiency, introduction. Industry decides the price of a bushel of wheat. Perfect information, everyone will know he"s selling at . The buyers know everyone else is selling at . Since it"s a homogeneous product with many sellers, people will buy somewhere else: farmer decides to sell wheat at . Immediately everyone"s going to know that and rush to his farm, line up outside his farm to buy his wheat. There are three possible short run equilibria for a firm operating under perfect competition. One where the firm makes positive profits, one where the firm makes zero profits, and one where the firm earns negative profits. In the latter case, the firm may or may not shut down.