TAILIEUCHUNG - Lecture Economics (6/e): Chapter 22 - Stephen L. Slavin

The objectives of this chapter are to introduce perfect competition. After studying this chapter you will be able to understand: The characteristics of perfect competition; the perfect competitor’s demand curve; the short run and and the long run; economic and accounting profits; decreasing, constant, and increasing cost industries. | Chapter 22 Perfect Competition Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 22-1 22-2 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Chapter Objectives The characteristics of perfect competition The perfect competitor’s demand curve The short run and and the long run Economic and accounting profits Decreasing, constant, and increasing cost industries 22-3 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Perfect Competition Is the first of four competitive modes It is a theoretical model that does not exist in the real world This will serve as the standard by which we will measure the next three competitive models Monopoly Monopolistic Competition Oligopoly Definition of Perfect Competition There are so many firms that no one firm is large enough to influence price Either by withholding output from the market or by increasing its output The firms are selling an identical product A product is identical, in the minds of the buyers, if they have no reason to prefer one seller over another 22-4 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. Definition of Perfect Competition The market has perfect mobility No barriers to entry such as licenses, long-term contracts, government franchises, patents, control over vital resources, etc. One possible exception is money Perfect knowledge about the market exist Everyone knows about every possible economic opportunity 22-5 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. 22-6 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. The Perfect Competitor’s Demand Curve The intersection of the industry supply and demand curve set the price that is taken by the individual firm, in this case $6 22-7 Copyright 2002 by The McGraw-Hill Companies, Inc. All rights reserved. The Perfect Competitor’s Demand Curve The perfect competitor faces a horizontal , or perfectly elastic, demand curve A firm with a

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