There are two sides to every market: supply and demand. Having examined each in detail, we now put the two components together to examine how the market as a whole behaves, This first chapter on industrial organization analyzes the behavior of perfectly competitive markets; these are idealized markets in which all firms and consumers are too small to affect the price. We begin with an investigation of the supply decisions of competitive firms. We then examine some special cases of competitive markets. We conclude this chapter by showing that a perfectly competitive industry will be efficient. After we have mastered the central case of perfect competition, we move on in the following chapters to monopoly and other forms of imperfect competition.

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