ECON 1000 Lecture Notes - Lecture 9: Market Power, Perfect Competition, Demand Curve

• School: York University
• Department: Economics
• Course: ECON 1000
• Professor: Ardeshir Noordeh

Document Summary

Many firms sell identical products to many buyers. There are no restrictions to entry into the industry. Established firms have no advantages over new ones. Sellers and buyers are well informed about prices. Industry demand is large relative to the minimum efficient scale of the firm. ~ each firm faces a perfectly elastic demand curve. Economic profit = total revenue total cost (includes normal profit) ~ in the short run, firms decide what quantity to produce or to shut down. Economic profit is maximized at the quantity where mr = mc: mr > mc, increase q, mr < mc, decrease q. * the perfectly competitive firms supply curve is its mc curve above minimum avc * Output, price, and profit in the short run. Short-run industry supply curve: horizontal sum of individual firms supply curves. *equilibrium market price and quantity is determined by industry demand/supply curves. P (= ar = mr) > atc ~ economic profit.