ECO101H1 Lecture Notes - Lecture 14: Perfect Competition, Market Power, Demand Curve
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ECO101H1 Full Course Notes
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Ss curve: exists only in perfectly competitive markets: reflects profit-maximizing behaviour, equals a firm"s mc schedule [will show] Key features: each firm is a price taker and faces a perfectly elastic demand curve at market price, the number of firms is fixed in the short run, but can vary in the long run. Perfectly competitive markets: insights: absence of barriers to entry: economic profits cannot persist in the long run, each firm is a price taker: faces an infinitely elastic demand curve at the market price. You are an organic farmer (pesticides) there is a sharp increase in the demand for organic foods. Answers: yes, no (as other farmers switch to organic crops, until the economic profits are competed away) Insight: for economic profits to persist over the long run, there must be obstacles (barriers to entry) that prevent new firms from entering and competing.