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The Economics of Competitive Markets
Murphy, Daniel Technical Note GEM-0180 / Published August 5, 2020 / 11 pages.
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Product Overview

This note describes how the behaviors of competitive buyers and sellers interact to determine market outcomes—the price at which a product is sold, and the quantity of a product that is exchanged. It begins by defining supply, demand, and market equilibrium. It then derives firms’ supply curves from its marginal cost curve, and demonstrates how the firm’s optimal production decision depends on the market equilibrium price. Finally, it shows how different factors that affect the market also affect a firm’s production decision.


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  • Overview

    This note describes how the behaviors of competitive buyers and sellers interact to determine market outcomes—the price at which a product is sold, and the quantity of a product that is exchanged. It begins by defining supply, demand, and market equilibrium. It then derives firms’ supply curves from its marginal cost curve, and demonstrates how the firm’s optimal production decision depends on the market equilibrium price. Finally, it shows how different factors that affect the market also affect a firm’s production decision.

  • Learning Objectives