Ch. 23: Pure Competition

1
Ch. 23 Pure Competition

• Characteristics Occurrence
• Presence of a large number of independently
  acting sellers
• Firms produce a standardized product. Therefore,
  as long as the price is the same, consumers are
  indifferent about which seller to buy from
• Individual firms have NO control over product
  price price taker
• New firms can freely enter and existing firms can
  freely exit the industry

2
Demand as Seen by a Purely Competitive Seller

• The demand curve of the competitive firm is
  perfectly elastic (Ed 8)
• Because the purely competitive seller is a price
  taker, the going market price (P) is the demand
  curve (D) for that good or service
• The market price is given
• The Demand Revenue Schedules for a Purely
  Competitive Firm (Table 23.2, Fig 23.1)
• Because a purely competitive firm can sell
  additional units of output at the market price,
  its MR curve coincides with its perfectly elastic
  demand curve
• In pure competition, P MR
• Marginal Revenue change in total revenue (extra
  revenue) resulting from selling one more unit of
  output

3
Marginal Cost Short-Run Supply

• The segment of the firms MC curve that lies
  above the AVC curve is its SR supply curve (Fig
  23.6)
• The horizontal sum of all the firms individual
  supply curves determines the industry supply
  curve (Fig 23.7)

4
Pure Competition and Efficiency

• The final L-R equilibrium position of all firms
  will have the same characteristics relating to
  economic efficiency
• Price will settle where it is equal to the
  minimum ATC
• Since the MC curve intersects the ATC curve at
  its minimum point, MC minimum ATC
• Fig 23.12

5
Ch. 23 Study Questions

• 1
• 3 (complete Table b)