1. Perfect Competition Principles of Microeconomics Boris Nikolaev

2. Introduction Firm behavior and efficiency depends on the market structure. Four market structures: (1)Perfect Competition (2)Monopoly (3)Imperfect (Monopolistic) Competition (4)Oligopoly

3. 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.

4. GOAL: max (profits) = max(TR-TC) This will happen at the point where MR= MC. Why?

5. Short-Run (SR) Equilibrium

6. Shutdown Decision (SR)

7. Short-Run Supply Curve

8. Long-Run Equilibrium

9. Efficiency Allocative Productive

10. The Supply Curve in non-competitive markets is non-existent.