ECON 110Lecture 19Outline of Last Lecture I. Short run/long run reminderII. Average Total Costsa. Average variable costsb. Average fixed costsIII. Marginal CostsIV. Graphing ATC, AVC, AFC, and MCV. The Long Runa. Relationship to short runb. PartsOutline of Current Lecture VI. Clicker QuestionVII. Market StructureVIII. Perfect competitionIX. Price Takinga. Exampleb. ImplicationsCurrent Lecture – Competitive MarketsClicker Question: Which firm would be most likely to be a price taker?A. Alabama PowerB. McDonaldsC. A local gas stationAnswer: C. A local gas station. Market Structure: To understand market structure, we need to recognize several parts that create the conditions in the market.- Market Participants (both sides, buyers and seller, in terms of numbers and size)- Entry Conditions (as well as exit conditions)These notes represent a detailed interpretation of the professor’s lecture. GradeBuddy is best used as a supplement to your own notes, not as a substitute.- Product Characteristics- Information CharacteristicsIn the case of perfect competition…- There are many buyers and sellers- Entry and exit is easily performed- The goods are identical (also known as homogenous products)- Information characteristics are generally not a factor in this case.These conditions imply that both buyers and sellers are price takers.Price Taking is either when an investor’s buying or selling transactions are assumed to have no effect on the market, or a firm’s rate of production and sales change without significantly affecting themarket price of its product.Basically, you can determine price takers by asking questions such as:How much influence does the firm have over the market price?Who makes the decision about setting prices?In perfect competition (where all buyers and sellers are price takers,) no one market participant can determine the market price.For example:Gas stations are perfect competition, because they are all price takers; their prices are posted, and that directly influences influx of buyers. Thus, if a gas station were to take whatever price they wanted, they would lose business and fail. They are all forced to take market price and cannot change it. However, this also means that they can sell whatever they want at that price without lowering it.So what are the implications of price taking?- What will demand curves for price-taking firms look like?- How will this affect the methods firms use to maximize
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