ECN 153 Chapter Notes - Chapter 14: Average Variable Cost, Marginal Revenue, Market Power

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If a firm can influence the market price of the good it sells, it is said to have market power. A competitive market, sometimes called a perfectly competitive market, has two characteristics: there are many buyers and many sellers in the market, the goods offered by the various seller are largely the same. The actions of any single buyer or seller in the market have a negligible impact on the market price. Each market buyer and seller takes the market price as given. No single consumer of milk can influence the price of milk because each buyer purchases a small amount relative to the size of the market. Similarly, each dairy farmer as limited control over the price because many other seller are offering milk that is essentially identical. Because each seller can sell all he want at the going price, he has little reason to charge less, and if he charges more, buyers will go elsewhere.

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