PSY 201 Lecture Notes - Lecture 4: Marginal Revenue, Market Power, Marginal Cost
Document Summary
Assume: many buyers and sellers (firm is price taker, homogenous product. Does(cid:374)"t (cid:373)ake any difference to the consumer where they get their product. Only care about price: elasticity of demand is very high (infinity : no entry barriers. Any business that wants to come in or leave can. A consumer can go anywhere: perfect information. Consumers know all the products are the same and what other prices are being offered. Sellers know about consumers and other sellers: sole goal: profit-maximize. The only goals of business is to profit maximize. A perfectly competitive firm is a price taker: has no control over the price they sell for, the equilibrium market is set by suppliers and demanders, the demand curve is horizontal. A business can sell all it wants for the price: representative firm: what the firms all look like, market is a downward sloping curve, but each firm faces a horizontal d.
