Perfect and imperfect competition
Pure competition
Monopolistic competition and efficiency
Imperfect competition
Profit maximization
Characteristics of pure competition
Pure competition demand
The demand graph is a horizontal line
Large number of buyers and sellers
Easy entry and exit
"Price takers" no real control over price
Standardized products
Firm produces as much or as little of a product at market price
Purely elastic demand
The MR - MC approach for profit maximization
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The TR - TC approach to maximize profit
Past the break-even point
To produce the output level where total revenue exceeds total cost by the greatest amount
Price = marginal revenue
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Short run supply- As long as price exceeds minimum AVC, the firm will continue to produce using the MR = MC
Loss minimizing - Still produce if MR > minimum AVC
Supply is an upsloping line
Characteristics of monopolistic competition
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Monopolistic competition
Easy entry and exit
Nonprice competition
Relatively large number of buyers and sellers
Production differentiation
Excess capacity- a situation where a firm is producing at a lower scale of output than it is designed for.
Price > Marginal cost, condition for allocative efficiency
Price > minimum average total cost Productive inefficiency
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