ECN 104 Chapter Notes - Chapter 8: Average Variable Cost, Perfect Competition, Marginal Revenue
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Economists group industries into four models based on their market structures: perfect competition, monopoly, monopolistic competition, oligopoly. 8. 2 characteristics of perfect competition and the firm"s demand curve. A perfectly competitive industry consists of a large number of independent firms producing a standardized product: perfect competition assumes that firms and factors of production are mobile among different industries. In a competitive industry, no single firm can influence market price, which means that the firm"s demand curve is perfectly elastic and price equals marginal revenue. Provided price exceeds minimum average variable cost, a competitive firm maximizes profit or minimizes loss in the short run by producing the output at which price or marginal revenue equals marginal cost. Applying the mr (=p) =mc rule at various possible market prices leads to the conclusion that the segment of the firm"s short-run marginal-cost curve that lies above the firm"s average-variable-cost curve is its short-run supply curve.