CHAPTER 10: PERFECT COMPETITION88
1. Price Takers
This perfect competition is one whereby there characteristics of this market structure
is of the following:
- Many buyers and seller
- Perfection information
- The product is homogenous
- All firms in this market structure can only sell small amounts of the good.
- No barrier to entry.
2. Demand and Revenue
-The PC market consist of the industry and the one firm within the industry. The PC
firm will take its price from the industries price which is Pe. The firm does not have
any power to price its good higher or lower as there are many buyers and sellers in
this market. Therefore we say that this PC firm is a “price taker” and not a price
setter. For this reason the demand curve (also the AR curve ) is a straight line.
If the firm trys to decrease its price to get more sales, they cannot benefit long
term the characteristic of PC firms is that they only sell very small amounts of
the good.
The PC firms also cannot increase it price to make more revenues as the are
many other firms selling at the cheaper market equilibrium price.
3. Cost and Supply Curves
The profit maximization point of the PC firm is at A whereby P=MC
(MC=MR). Only the PC firm will profit maximise at the point where P=MC.
All other market structure firms will profit maximize at MC=MR.
4. Profit Maximising Equilibrium in Short-Run & Long-Run
1. Price Takers
This perfect competition is one whereby there characteristics of this market structure
is of the following:
- Many buyers and seller
- Perfection information
- The product is homogenous
- All firms in this market structure can only sell small amounts of the good.
- No barrier to entry.
2. Demand and Revenue
-The PC market consist of the industry and the one firm within the industry. The PC
firm will take its price from the industries price which is Pe. The firm does not have
any power to price its good higher or lower as there are many buyers and sellers in
this market. Therefore we say that this PC firm is a “price taker” and not a price
setter. For this reason the demand curve (also the AR curve ) is a straight line.
If the firm trys to decrease its price to get more sales, they cannot benefit long
term the characteristic of PC firms is that they only sell very small amounts of
the good.
The PC firms also cannot increase it price to make more revenues as the are
many other firms selling at the cheaper market equilibrium price.
3. Cost and Supply Curves
The profit maximization point of the PC firm is at A whereby P=MC
(MC=MR). Only the PC firm will profit maximise at the point where P=MC.
All other market structure firms will profit maximize at MC=MR.
4. Profit Maximising Equilibrium in Short-Run & Long-Run
