Chapter 14 Notes

Chapter 14 Notes - Chapter 14 - Characteristics of perfect...

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Chapter 14 - Characteristics of perfect competition o Many buyers and sellers o The goods offered for sale are largely the same o Firms can freely enter or exit the market. o Because there are many buyers and sellers along with the goods being offered being similar, each buyer and seller is a price taker in a perfect competition market. - The revenue of a competitive firm o Total Revenue (TR) TR = P x Q Average revenue (AR) o AR = TR/Q Marginal Revenue o Change in total revenue / change in quantity - MR – P for a competitive firm o A competitive firm can keep increasing its output without affecting the market price. o So, each one-unit increase in Q causes revenue to rise by P. o Only true for firms in competitive markets. - If you increase your quantity by one unit, revenue rises by MR, cost rises by MC. - MC = TC2-TC1 - Three general rules for profit maximization If marginal revenue is greater than marginal cost, the firm should increase its output.
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This note was uploaded on 04/17/2008 for the course ECO 201 taught by Professor Zenker during the Spring '08 term at Elon.

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Chapter 14 Notes - Chapter 14 - Characteristics of perfect...

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