Perfect Competition Widener University完美竞争威得恩大学.pptVIP

Types of Market Structure Pure Competition or Perfect Competition Monopoly Monopolistic Competition Oligopoly Perfect Competition Assumptions of Perfect Competition Many independent firms Each seller is small relative to the whole market Homogeneous (identical) product Easy entry and exit (no barriers to entry) Price Taking The perfectly competitive firm is said to be a price-taker, because it takes the market price as given and has no control over the price. Why?... If the firm tried to charge a higher price, it would lose all its business. Customers could go elsewhere to buy the same product for less. Since the firm is very small, it can sell as much as it wants at the market price. So there’s no reason to charge a lower price. The demand curve for the product of the  perfectly competitive firm shows how much  can be sold at specific prices. Let’s see what  it would look like... The firm can sell as little or as much as it wants at the market price. Suppose, for example, the market price is $5. Connecting these points, we have the demand curve for the firm’s product. The demand curve for the perfectly competitive firm’s product is a horizontal line at the market price. Recall: Total Revenue Total Revenue = Price x Quantity TR = P Q Recall: Marginal Revenue (MR) Marginal Revenue is the additional revenue earned from selling one additional unit of output. MR = DTR / DQ comment For ease of writing, instead of writing the “perfectly competitive” firm we will frequently write the “p.c.” firm. The MR Curve for the p.c. Firm For the p.c. firm, MR is equal to the market price. So MR is a horizontal line at the level of that price. The demand curve for the p.c. firm is also a horizontal line at the level of the market price. So, for the p.c. firm, the demand curve and the MR curve are the same horizontal line. The demand curve (D) and the MR curve for the perfectly competitive firm’s product. Optimal