Chapter+14+***

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 * Questions are asked in the podcast.

Chapter 14 is about Perfect competition. What perfect competition means is that there are many firms in this market, so one firm's change is totally negligible in this huge market. We learn that perfect competitors are price takers, so their demand curve is horizontal. Their profit maximization is where marginal cost equals marginal revenue. Firms have both Fixed costs and Variable Costs. If firms' Average Variable Cost is below the price, firms continue to operate but if the price is below the Average Variable Cost, firms shut down in the short run. If firms' Average Total cost is below the price, firms enter the market because they see that this market makes profit. Vice versa, if the Average Total cost is above the price, firms exit the market because they see that the market is making a loss.


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