ECON 101 Chapter Notes - Chapter 9: Sunk Costs, Game Theory, Variable Cost

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23 Jun 2016
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ECON 101 Full Course Notes
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Market structure-all features of a market that affect the behavior of firms in that market. Competitive structure-firms have little or no market power. Perfectly competitive market= zero marketing power=price set by forces of market demand and supply. Have ability to change and still attract customers (visa, Perfect competition-ex. agricultural industries and raw material suppliers. Degree of market power (wheat farmers < visa/mastercard) Demand curve of a perfectly competitive market (horizontal/elastic) = zero, horizontal because variations in the firms output have no significant effect on market price. Farmers for example face a horizontal demand curve because their output quantity would not increase or decrease the worldwide price of wheat. The elasticity for wheat is 0. 25 while the farmers elasticity is 125 000, this high elasticity shows that a farmer would have to increase output by this number to bring a 1% decrease in the price of wheat. That is why a farmers output faces a horizontal curve.

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