Notes - Chapter 6 - 1 Firms sell the same standardized...

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I. Perfectly Competitive Supply (Cost Side of the Market) 1. Suppliers will sell a good or service if the additional benefit (revenue) is greater than the additional cost (Cost of Production / Opportunity Cost) 1. Leroy is an apple picking magazine writer 1. He can earn 10c per word 2. He can write at a constant rate of 200 words per hour 3. $20 per hour 2. Reasons for Upward Sloping Market Supply Curve 1. Individual supply curves show increasing opportunity cost 2. Individual suppliers have different oc's at different levels of production 3. Profit – The total revenue that a firm receives from the sale of its product minus all costs – explicit (materials, labor) and implicit (opportunity cost) – incurred in producing the product 4. Profit-Maximizing Firm – A firm whose primary goal is to maximize the difference between total revenues and total costs 1. Firms are Price Takers 2. Firms try to pick the quantity to supply that will maximize profits II. Characteristics of Perfectly Competitive Markets
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Unformatted text preview: 1. Firms sell the same standardized product 2. Buyers are willing to switch from one supplier to another if price changes 3. Markets have many buyers and sellers, each of which buys or sells only a small part of the total that is exchanged 4. Productive resources are mobile 1. If a seller sees a profit opportunity, it can easily begin to supply in that market III. Lower Cost of Production --> Increase in supply 1. Supply shifts right/down 2. For any given price, firms supply more. 3. For any give quantity, marginal cost of production fell IV. Producer Surplus 1. The total gains that suppliers receives for participating in a market 2. The amount that price exceeds the seller's reservation price 1. The minimum price a seller would take for its product 3. Shaded area Above supply curve, Below market price 4. Producer surplus does NOT equal profit, since it includes soe benefits that flow to the owner's of productive resources 1. PS > Profits...
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