Chapter 5 notes - I Chapter Five Competition and Monopoly a Perfect Competition i Low barriers to entry ii Many sellers and buyers iii Standardized

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I. Chapter Five: Competition and Monopoly a. Perfect Competition i. Low barriers to entry ii. Many sellers and buyers iii. Standardized product iv. Perfect information v. The perfectly competitive firm 1. A perfectly competitive firm is a price taker because it has to accept the price set by the market. See figure 5.1 pg 125 2. MR = TR/ Q Marginal revenue represents the increase in total revenue gained from selling one more unit of output. 3. For a perfectly competitive firm MR=P :because each additional unit sold adds a constant amount (price) to total revenue the firm’s marginal revenue is constant and equals price vi. Profit maximization 1. Always produce where MR=MC 2. Understand this intuitively: as a producer you want as much profit as you can get, so you decide to produce one more unit as long as that unit will bring in more revenue than cost 3. Review figure 5.2- be able to reconstruct a similar graph vii. Loss minimization 1. Sometimes demand is temporarily below average cost
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This note was uploaded on 07/13/2008 for the course ECON 201 taught by Professor Baker during the Fall '07 term at University of Tennessee.

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Chapter 5 notes - I Chapter Five Competition and Monopoly a Perfect Competition i Low barriers to entry ii Many sellers and buyers iii Standardized

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