Firms in Competitive Marketsu2028 - Firms in Competitive...

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Firms in Competitive Markets1.WHAT IS A COMPETITIVE MARKET2.A perfectly competitive market has the following characteristics:  There are many buyers and sellers in the market.  The goods offered by the various sellers are largely the same.  Firms can freely enter or exit the market. As a result of its characteristics, the perfectly competitive market has the following outcomes:  The actions of any single buyer or seller in the market have a negligible impact on the market price.  Each buyer and seller takes the market price as given.  Each buyer and seller is a price taker 2. REVENUETotalrevenue for a firm is the selling price times the quantity sold. TR =P * Q
Total revenue is proportional to the amount of output. Average revenue tells us how much revenue a firm receives for thetypical unit sold. It is total revenue divided by the quantity sold. Marginal revenue is the change in total revenue from an additionalunit sold. For competitive firms, marginal revenue equals the price of the good.Profit maximization occurs at the quantity where marginal revenue equals marginal cost  maximized
3. The Firm’s Short-Run Decision to Shut Down A shutdown refers to a short-run decision not to produce anything during a specific period of time because of current market conditions. • Shut down if P < AVC (Negative profit is possible)

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