ECON 1050 Lecture Notes - Lecture 18: Social Cost, Competitive Equilibrium, Demand Curve

• School: University of Guelph
• Department: Economics
• Course: ECON 1050
• Professor: Galay

Document Summary

Many firms sell identical products to many buyers. There are no restrictions on entry into the market. Established firms have no advantages over new ones. Sellers and buyers are well informed about prices: how perfect competition arises. The fi(cid:396)(cid:373)"s (cid:373)i(cid:374)i(cid:373)u(cid:373) effi(cid:272)ie(cid:374)t s(cid:272)ale is s(cid:373)all (cid:396)elati(cid:448)e to (cid:373)a(cid:396)ket de(cid:373)a(cid:374)d, so the(cid:396)e is room for many firms in the market. Each firm is perceived to produce a good or service that has no unique (cid:272)ha(cid:396)a(cid:272)te(cid:396)isti(cid:272)s, so (cid:272)o(cid:374)su(cid:373)e(cid:396)s do(cid:374)"t care (cid:449)hi(cid:272)h fi(cid:396)(cid:373)"s good the(cid:455) (cid:271)u(cid:455: price takers. In perfect competition, each firm is a price taker. A price taker is a firm that cannot influence the price of a good or service: economic profit and revenue. Economic profit = total revenue total cost. A fi(cid:396)(cid:373)"s total revenue equals price, p, multiplied by quantity sold, q, or p x q. A fi(cid:396)(cid:373)"s marginal revenue is the change in total revenue that results from a one-unit increase in the quantity sold.