CAS EC 101 Lecture 24: Lecture 24- 26

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magentayak746

23 Jun 2016

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We want to construct a model as simple as possible, but not too simple. We will assume that these firms are price takers, that is there is nothing they can do to influence the price of the good that they sell. A price taker is a firm that is unable to affect the market price. A firm is likely to be a price taker when it sells a product that is exactly the same as every other firm. There are many buyers and sellers in the market. All buyers and sellers know prices charged by all sellers. The firms face prices and face cost curves, cannot alter their product, so the only choice left is how much they can make. If revenue increases faster than cost, they should increase output. If cost decreases faster than revenue, they should decrease output. Profit maximized where revenue and cost increase at the same rate, that is where price of product = marginal cost.

Related Questions

What are the three conditions for a market to be perfectly competitive? For a market to be perfectly competitive, there must be:

A. many buyers and one seller, with the firm producing a product that has no close substitutes, and barriers to new firms entering the market.

B. many buyers and sellers, with firms selling similar but not identical products, with low barriers to new firms entering the market

C. many buyers and a few sellers, with all firms selling identical products, and no barriers to new firms entering the market.

D. many buyers and sellers, with all firms selling identical products, and no barriers to new firms entering the market.

E. many buyers and a small number of firms that compete, selling differentiated products, and barriers to new firms entering the market.

amberhamster945

What conditions make a market perfectly competitive? A market is perfectly competitive if:

(i) it has many buyers and one firm, which produces a product with no close substitutes, with barriers to new firms entering the market.

(ii) it has many buyers and many sellers, all of whom are selling differentiated products, with no barriers to new firms entering the market.

(iii) it has many buyers and a few sellers, all of whom are selling identical products, with no barriers to new firms entering the market.

(iv) it has many buyers and a few sellers, all of whom are selling differentiated products, with barriers to new firms entering the market.

(v) it has many buyers and many sellers, all of whom are selling identical products, with no barriers to new firms entering the market.

ambertiger96

Which of the following is not characteristic of a perfectly competitive market?

A. There are many buyers and many sellers
B. Firms are price-takers
C. There are no barriers to entry
D. Firms advertise in order to distinguish their products and increase market share

azureantelope164

CAS EC 101 Lecture 24: Lecture 24- 26

CAS EC 101 Full Course Notes

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