Tuesday, December 20, 2016

Perfect Competition Cheat Sheet Updated 12/20/2016

Perfect Competition Cheat Sheet Updated 12/20/2016

I added 2 small parts - Why? doesn't the perfectly competitive firm raise its price. (In the perfectly competitive market there are thousands of firms, each competing with each other, and all goods are the same (homogenous). If you raise your price then there are so many competitors that your customers will just buy from someone else... Yes, even if you raise the price by a penny.... This doesn't work as well in the real world,, but the AP exam isn't the real world)

- Why? doesn't the perfectly competitive firm lower its price? (In the perfectly competitive market the perfectly elastic MRDARP curve. Perfectly elastic demand implies that the firm can sell all it wants at the market price... I'm gonna write that again,, the firm can sell all it wants at the market price... Why would I ever lower my price if I can sell all I want,, everything I make,,, anything that I build at the higher price????

I added this because so many of the people I'm tutoring this year,, seem to miss these simple points.


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