1. Perfect Competition Sections 4.1 and 4.2

2. Market Structures and Organization

3. Old and New Views About Perfect Competition The Old View: –Conditions: Atomicity Homogeneity Perfect and Complete Information Equal Access Free Entry Independent Behavior New View –Agents behave competitively if they take prices as given; i.e. if they believe that their actions do not influence prices.

4. Non Increasing Returns to Scale P Q a a/b

5. Definition: Competitive Equilibrium An equilibrium is an outcome: {p e, q 1 e, q 2 e } It solves the problem: –Subject to:

6. The Supply Solution

7. If a > c 2 > c 1, the only solution will be p e = c 1.

8. Increasing Returns to Scale P Q With IRS there is no competitive equilibrium.

9. Exercise 4.1