ECON-200 Lecture Notes - Lecture 23: Market Power, Marginal Revenue, Perfect Competition

• School: Diablo Valley College
• Department: Economics
• Course: ECON-200
• Professor: Sorce

Document Summary

Perfectly competitive markets price taking - firms take market price as given individual firms sell sufficiently small part of total market output firms can"t decide what market price is in a perfectly competitive situation. Consumers also act as price takers individual decisions do not affect the outcome of the whole product homogeneity - firms produce nearly identical products. Products essentially perfect substitutes for each other >> very elastic. Commodities - homogeneous materials such as raw metals, oil, gasoline, vegetables, fruit: consumers don"t really care what specific firm made which. Name brands (ie. nike, adidas, bluebell) not taken into consideration in perfectly competitive situations. Helps ensure a single market price free entry/exit - no costs for new firm to enter/exit industry lets consumers switch from 1 supplier to another firms can enter if it sees profit, exit if losing profit. P(q) = r(q) - c(q: r(q) = pq, profit maximized where difference between revenue and cost is greatest.