ECON 100A Chapter Notes - Chapter 8: Marginal Revenue, Profit Maximization, Marginal Cost
Document Summary
Firm that has no influence over market price and thus takes the price as given. Price taking applies to consumers too: each consumer buys small proportion of total industry output which results in no impact on the market price. Homogenous: product of all the firms in a market are perfectly substitutable with one another. No firm can raise the price of its product above the price of other firms without losing most or all its business. Homogenous products also referred to as commodities. This assumption ensures that there is single market price. Free entry (or exit): condition under which there are no special costs that make it difficult for a firm to enter/exit an industry. Important for competition to be effective: consumers can switch to rivals. Predicts business behavior reasonably accurately and avoids unnecessary analytical complications. Cooperative: association of businesses or people jointly owned and operated by members for mutual benefit.
