Perfect Competition Principles of Microeconomics Boris Nikolaev
Introduction Firm behavior and efficiency depends on the market structure. Four market structures: (1)Perfect Competition (2)Monopoly (3)Imperfect (Monopolistic) Competition (4)Oligopoly
Perfect Competition 1.Large number of relatively small buyers and sellers. No market power. 2.Homogeneous products. 3.Easy entry and exit. 4.Perfect information of price and availability. 5.No advertising (or other forms of competition). Implications: From 1. and 2. PC firms are PRICE TAKERS! P = MR = AR (i.e. demand is perfectly elastic) From 3. Efficiency in the long-run.
GOAL: max (profits) = max(TR-TC) This will happen at the point where MR= MC. Why?
Short-Run (SR) Equilibrium
Shutdown Decision (SR)
Short-Run Supply Curve
Long-Run Equilibrium
Efficiency Allocative Productive
The Supply Curve in non-competitive markets is non-existent.