ECO101H1 Lecture Notes - Lecture 14: Kent Music Report, Warren Buffett, Marginal Revenue
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ECO101H1 Full Course Notes
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Exists only in perfectly competitive markets: reflects profit-maximising behaviour, equals a firm"s mc schedule (will show) Key features: each 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 market: insights: absence of barriers to entry: economic profit cannot persist in the long run, each firm is a price taker: faces an infinitely elastic demand curve at market price. There is a sharp increase in demand for organic foods. Answer: yes, no (as other farmers switch to organic crops until the economic profits are competed away) For economic profits to persist over the long run, there must be obstacles (barriers to entry) that prevent new firms from entering and competing. Looks for companies that have a moat a barrier to entry that prevents other firms from competing away its profits.