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Presentation #9: Perfect Competition Perfect Competition explained in 4 ½ minutes Long Run Perfect Competition explained in 2 minutes Shutting Down or Exiting Industry in Perfectly Competitive Markets explained in 7 minutes Market Characteristics Market characteristics of FIRMS: – # of Firms These 4 – Type of Product Determine degree – Ease of entering orexiting industry of price control – Amount of Information Characteristics of Perfect Competition: Perfect Monopolistic Oligopoly Competition Competition Monopoly Imperfect Competition Examples: Corn, Milk, other “commodities” Many small firms Identical products (perfect substitutes) Low Barriers - Easy for firms to enter and exit the industry Seller has no need to advertise Firms are “Price Takers” Each firm has NO control over price. Industry & Firm in Long Run Equilibrium “Side by Side” Graph of perfect competition Entire Industry Long Run Equilibrium Economic Profit = Zero Individual Firm Price = Min. of ATC Price T-Shirts S Price T-Shirts 1 MC ATC D = MR $10 ---------------------- E1 $10 --------E1 AVC 1 --- D --- - 1 - -- Q Q 1 Qty 1 Qty Individual firms can sell all of their production at the current Market Price (Individuals are price takers)… So for a single firm: Price = MR = D
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