ECON 203 1nd Edition Lecture 16Outline of Last Lecture I. Public Goodsa. Types of goodsb. Criteria for public goodsc. Problems with public goodsd. Free ridersOutline of Current LectureI. Market structurea. Perfect competitionCurrent LectureI. Market Structurea. Perfect competition( pure competition)Market has- lots of small producers (large number of small suppliers)-good/service in question is considered homogeneous, according to consumers (everybody in their market sells the identical thing)-no barriers to entry/exit of the market Ex. Farming- producers make the same crops (potatoes, green beans, etc), stock market-all shares are equal, unskilled labor market, NO FIRM HAS ANY MARKET POWERIf you were to see 2 vending machines side by side that sold the same product at the same price, it wouldn’t matter which one you do business with. If one of the vending machines increases its price but still sells the same product, you would do business with the less expensive machine. Because firms have no market power AND they all sell the same thing, they will all charge the same price –the market will determine that price Firms are price takers, they look to the market to determine their pricesIn looking at a marginal cost curve, a horizontal line at price P* is seen by each firm as: a demand curve and marginal revenueThese 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.Q*= q1 + q2 +q3 : i.e. the quantity of the market equals the quantity of each individual firm combinedDecision rule for production: produce units up to where the last unit produced has MC= p*. every time a unit sells, firms get p*, so p*=MRMR-marginal revenue- the additional amount of revenue associated with the sale of additional
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