GMS 402 Chapter Notes - Chapter 8: Profit Maximization, Fop, Market Power
2 Nov 2016
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The rst four assumptions imply that no single rm can in uence the price of the product. Consumers view the products of all rms in the markets as perfect substitutes. There are no transaction costs, such as the cost of traveling to a store. The assumption of free entry and exit implies that additional rms can enter the market if economic pro ts are being earned, and rms are free to leave the market if they are sustaining losses. Rms operating in a perfectly competitive market earn zero economic pro ts. The rm manager must charge at market price or consumers will purchase from a. In a competitive market, price is determined by the intersection of the market supply and demand curves. Firm demand curve: the demand curve for an individual rm"s product; in a perfectly competitive market, it is simply the market price. The rm can sell as much as it wants at pe.
