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Managerial Economics For Dummies by Robert J. Graham

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Chapter 9

Limited Decision-Making in Perfect Competition

In This Chapter

arrow Discovering that perfect competition has no competition

arrow Maximizing profit in perfect competition

arrow Calculating profit

arrow Knowing when to quit

arrow Eliminating profit in the long run

Baseball player Yogi Berra once said, “If the world was perfect, it wouldn’t be.” That quote actually fits the economist’s idea of perfect competition — please forgive me — perfectly.

When economists use the term perfect competition, they don’t refer to competition at all. Indeed, perfect competition is the least competitive business environment there is. In perfect competition, you can’t set your product’s price and you have no incentive to advertise or innovate. You don’t compete with other firms. (However, you still have an incentive to minimize your production costs.) See, Yogi Berra is a lot smarter than you think — maybe he would have been an even better economist than he was a baseball player.

What perfect competition really refers ...

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