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Microeconomics
Course: microeconomics > unit 7.
- Introduction to perfect competition
Perfect competition and why it matters
- Economic profit for firms in perfectly competitive markets
- How perfectly competitive firms make output decisions
- Efficiency in perfectly competitive markets
- Perfect competition foundational concepts
- Long-run economic profit for perfectly competitive firms
- Long-run supply curve in constant cost perfectly competitive markets
- Long run supply when industry costs aren't constant
- Free response question (FRQ) on perfect competition
- Perfect competition in the short run and long run
- Increasing, decreasing, and constant cost industries
- Efficiency and perfect competition
- A perfectly competitive firm is a price taker , which means that it must accept the equilibrium price at which it sells goods. If a perfectly competitive firm attempts to charge even a tiny amount more than the market price, it will be unable to make any sales.
- Perfect competition occurs when there are many sellers, there is easy entry and exiting of firms, products are identical from one seller to another, and sellers are price takers.
- The market structure is the conditions in an industry, such as number of sellers, how easy or difficult it is for a new firm to enter, and the type of products that are sold.
- Many firms produce identical products.
- Many buyers are available to buy the product, and many sellers are available to sell the product.
- Sellers and buyers have all relevant information to make rational decisions about the product being bought and sold.
- Firms can enter and leave the market without any restrictions—in other words, there is free entry and exit into and out of the market.
Self-check questions
Review questions.
- A single firm in a perfectly competitive market is relatively small compared to the rest of the market. What does this mean? How small is small?
- What are the four basic assumptions of perfect competition? Explain what they imply for a perfectly competitive firm.
- What is a price taker firm?
Critical-thinking questions
- Finding a life partner is a complicated process that may take many years. It is hard to think of this process as being part of a very complex market with a demand and a supply for partners. Think about how this market works and some of its characteristics, such as search costs. Would you consider it a perfectly competitive market?
- Can you name five examples of perfectly competitive markets? Why or why not?
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Key points. A perfectly competitive firm is a price taker, which means that it must accept the equilibrium price at which it sells goods. If a perfectly competitive firm attempts to charge even a tiny amount more than the market price, it will be unable to make any sales. Perfect competition occurs when there are many sellers, there is easy ...