TAILIEUCHUNG - Ebook Microeconomics (10th edition): Part 2

(BQ) Part 2 book "Microeconomics" has contents: Perfect competition, monopoly and monopolistic competition, oligopoly and antitrust policy, work and the labor market, thinking like a modern economist; microeconomic policy, economic reasoning, and beyond,.and other contents. | chapter 13 Perfect Competition “ T There’s no resting place for an enterprise in a competitive economy. ” —Alfred P. Sloan he concept competition is used in two ways in economics. One way is as a process. Competition as a process is a rivalry among firms and is prevalent throughout our economy. It involves one firm trying to figure out how to take away market share from another firm. An example is my publishing firm ­ iving me a contract to write a great g book like this in order for the firm to take market share away from other publishing firms that are also selling economics textbooks. The other use of competition is as a perfectly competitive market structure. It is this use that is the subject of this chapter. © JP Laffont/Sygma/Corbis Perfect Competition as a Reference Point Although perfect competition has highly restrictive assumptions, it provides us with a reference point for thinking about various market structures and c ­ ompetitive processes. Why is such a reference point important? Think of the following analogy. In physics when you study the laws of gravity, you initially study what would happen in a vacuum. Perfect vacuums don’t exist, but talking about what would happen if you dropped an object in a perfect vacuum makes the analysis easier. So too with economics. Our equivalent of a perfect vacuum is perfect competition. In perfect competition, the invisible hand of the market operates unimpeded. In this chapter, we’ll consider how perfectly competitive markets work and see how to apply the cost analysis developed in the previous two chapters. Conditions for Perfect Competition A perfectly competitive market is a market in which economic forces ­operate unimpeded. For a market to be called perfectly competitive, it must meet some ­ tringent conditions. Some of them are: Both buyers and sellers s are price ­ akers. The number of firms is large. There are no barriers to entry. t Firms’ products are identical. There is

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