ECON 1000 Chapter Notes - Chapter 11: Marginal Revenue, Perfect Competition, Takers
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ECON 1000 Full Course Notes
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Perfect competition in a market is when: numerous firms sell identical products to many buyers, no restrictions to entry into industry, established firms have no advantages over new ones, sellers and buyers are well-informed about prices. Demand for a firm"s product is perfectly elastic because one firm"s product is the perfect substitute of the same product from another firm. Market demand is not perfectly elastic b/c sweater is a substitute for some other good. (downward sloping curve) To maximize economic profit, the firm must decide: how to product at min cost, what quantity to produce, whether to enter or exit a market. If mr > mc, economic profit increases if output increases if mr < mc, economic profit decreases if output increases. If mr = mc, economic profit decreases if output changes in either direction: economic profit maximized. If firm makes economic loss and decides to stay in market, it either: temporarily shuts down or produces something.
