Cost and profit maximization under competition - What price to set?
3 important questions on Cost and profit maximization under competition - What price to set?
What price should be set in a competitive industry?
To maximize the profit you sell at the market price:
- You can't sell it for more, because no one will buy it.
- You won't sell it for less, because you can get more for your produce.
- You can't sell it for more, because no one will buy it.
- You won't sell it for less, because you can get more for your produce.
When is there a perfectly elastic demand curve?
1. When the product being sold is similar across different firms
2. When there are many buyers and sellers, each one a small relative to the total market.
Demand curves are more elastic in the long run: all entry and exit have already occurred.
VB: market for gold, paper, wheat etc
2. When there are many buyers and sellers, each one a small relative to the total market.
Demand curves are more elastic in the long run: all entry and exit have already occurred.
VB: market for gold, paper, wheat etc
When is an industry competitive?
An industry is competitive when firms don't have much influence over the price of their products. Conditions:
1. The product is similar across sellers.
2. There are many buyers and sellers
3. There are many potential sellers.
1. The product is similar across sellers.
2. There are many buyers and sellers
3. There are many potential sellers.
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