Ss_W05_T05_lecture(1in1) - Reading Assignment Chapter 14 Indicative contents Market behavior under perfect competition After studying this topic you

Ss_W05_T05_lecture(1in1) - Reading Assignment Chapter 14...

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1 Reading Assignment: Chapter 14 Indicative contents Market behavior under perfect competition After studying this topic, you will be able to: 1. Explain a perfectly competitive firm’s profit -maximizing choices and derive its supply curve. 2. Explain how output, price, and profit are determined in the short run. 3. Identify the long run equilibrium and explain why perfect competition is efficient.
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2 The four market types are Perfect competition Monopoly Monopolistic competition Oligopoly Perfect competition exists when Many firms sell an identical product to many buyers. There are no restrictions on entry into (or exit from) the market. Established firms have no advantage over new firms. Sellers and buyers are well informed about prices. Market Types
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3 Market Types Other Market Types Monopoly is a market for a good or service that has no close substitutes and in which there is one supplier that is protected from competition by a barrier preventing the entry of new firms. Monopolistic competition is a market in which a large number of firms compete by making similar but slightly different products. Oligopoly is a market in which a small number of firms compete.
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4 14.1 A Firm s Profit-maximizing Choices Price Taker A price taker is a firm that cannot influence the price of the good or service that it produces. The firm in perfect competition is a price taker. Revenue Concepts In perfect competition, market demand and market supply determine price. A firm s total revenue equals the market price multiplied by the quantity sold. A firm s marginal revenue is the change in total revenue that results from a one-unit increase in the quantity sold.
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5 14.1 A Firm s Profit-maximizing Choices Dave s total revenue curve is TR . The table shows the calculations of TR and MR . Part (a) shows the market for syrup. The market price is $8 a can. In part (b), the market price determines the demand curve for Dave s syrup, which is also his marginal revenue curve.
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6 Marginal Analysis and the Supply Decision Marginal analysis compares marginal revenue ( MR ) with marginal cost ( MC) . As output increases, MR remains constant but MC . 14.1 A Firm s Profit-maximizing Choices If marginal revenue exceeds marginal cost (if MR > MC ), the extra revenue from selling one more unit exceeds the extra cost incurred to produce it. Economic profit if output . If marginal revenue is less than marginal cost (if MR < MC ), the extra revenue from selling one more unit is less than the extra cost incurred to produce it.
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