this chapter we shall see that prices just high enough to induce firms to continue to produce are precisely what we would expect to prevail in a competitive market We will examine a model of how competitive markets work Not only does this model help to explain the situation facing farmers, but it will also help us to understand the determination of price and output in a wide range of markets A farm is a firm, and our analysis of such a firm in a competitive market will give us the tools to analyze the choices of all firms operating in competitive markets We will put the concepts of marginal cost, average variable cost, and average total cost to work to see how firms in a competitive market respond to market forces We will see how firms adjust to changes in demand and supply in the short run and in the long run In all of this, we will be examining how firms use the marginal decision rule Figure 9.1 The competitive model introduced in this chapter lies at one end of a spectrum of market models At the other end is the monopoly model It assumes a market in which there is no competition, a market in which only a single firm operates Two models that fall between the extremes of perfect competition and monopoly are monopolistic competition and oligopoly Attributed to Libby Rittenberg and Timothy Tregarthen Saylor URL: http://www.saylor.org/books/ Saylor.org 464