ECON 1000 Chapter Notes - Chapter 12: Average Variable Cost, Marginal Cost, Demand Curve
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ECON 1000 Full Course Notes
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Perfect competition arises if the minimum efficient scale of a single producer is small relative to the market demand for the good or service. In perfect competition each firm produces a good that has no unique characteristics, so consumers don"t care which firms good they buy. Price taker is a firm that cannot influence the market place because its production is an insignificant part of the total market. A firm"s total revenue equals the price of its output x by number of units of output sold. (price x quantity) Demand for the firm"s product: the firm can sell quantity it chooses at the market price. Thus, the demand curve for the firm"s product is a horizontal line at the market price, same as the firm"s marginal revenue: because the demand curve is horizontal it is perfectly elastic demand. Goal of the competitive firm is to maximize economic profit.
