COMM 220 Study Guide - Prentice Hall, Perfect Competition, Marginal Revenue

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10 Dec 2014
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Key concepts and topics: perfectly competitive markets, profit maximization, marginal revenue, marginal cost, and profit maximization, choosing output in the short run, the competitive firm"s short-run supply curve, the short-run market supply curve. Perfectly competitive markets: basic assumptions of perfectly competitive markets, price taking, product homogeneity, free entry and exit, price taking. Individual firm sells a very small share of the total market output and cannot influence market price. Individual consumer buys too small a share of industry output to have any impact on market price: product homogeneity. The products of all firms are perfect substitutes. Examples: agricultural products, oil, copper, iron, lumber (commodities) Heterogeneous products (brand names) can charge higher prices because they are perceived as better: free entry and exit. No special costs that make it difficult for a firm to enter (or exit) an industry. Examples: r&d expenditures, license fees, immense capital investment. Buyers can easily switch from one supplier to another.

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