PERFECTLY COMPETITIVE MARKETS

PERFECTLY COMPETITIVE MARKETS

1. EXAMPLES

   • Rice Farms
   • Farming Activity
   • Poultry Farming

2. Price Taker

   • Firms are Restrained from raising its price because consumers will find another competitor in the market with lower prices
     • Many Firms
       • Many buyers and firms exist to create the larger market
     • Many Identical Products
     • Relative Ease in Market Entry
       • Meaning there are no barriers or walls preventing anyone from entering the market
     • So How Do Firms Maximize Profit?
       • Figuring out how much of a product should be produced
         • Profit=TR-TC
         • To maximize profits the firm should produce the quantity where the difference between total revenue and total cost is as large as possible
           • MR=(ΔTR)/(ΔQ)
             • MR=(Change in total revenue)/(Change in Quantity)
           • Total Profit= (p-ATC) x Q
             • P>ATC, firm has profit
             • P=ATC, breaks even
             • P<ATC, firm faces loses
       • What if the firm is experiencing loses?
         • Long-run decision
           • Exit the Market
         • Short-run decision
           • Temporarily stop production
             • If, Total Revenue < Variable Cost
           • Face Sunk Cost
             • A fixed cost that is unavoidable and can't be recovered
           • Continue to Produce
             • If, Total Revenue >= Variable Cost
           • Short-run supply curve
             • Where MC and AVC meet is the shutdown point
             • MC is the supply curve for firms in SR
             • P is the minimum price where the firm can continue to produce

3. Horizontal Demand Curve

   • Because firms are selling the same products they can sell as much as they wants at that times current market price but won't be able to if the price is raised
   • No matter the quantity sold by a firm, no effect on the market price will take place

4. Resources used

   • https://www.quora.com/What-is-a-horizontal-demand-curve-What-are-its-functions
     • https://economics.stackexchange.com/questions/13037/is-the-marginal-cost-the-same-for-every-firm-in-a-perfectly-competitive-market
       • https://slideplayer.com/slide/12635741/
         • http://www.swlearning.com/economics/landsburg/landsburg5e/powerpoint/Ch07/sld004.htm

5. Prefect Competition Market

   • Where supply and demand lines meet is the equilibrium

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