Nov 26, Firms in Competitive Markets

Nov 26, Firms in Competitive Markets - Firms in Competitive...

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Context and Purpose The previous chapter developed the cost curves on which firm behavior is based. We employee these curves to show how a competitive firm responds to changes in market conditions We examine the behavior of competitive firms and shed the might on the decision that lie behind the supply curve in a competitive market. What is a competitive market? The meaning of competition The use of the word competition in economics is much differest than that in sports A perfectly competitive market has the following characteristics: o The are many buyers and sellers in the market. o The goods offered by the various sellers are largely the same. o Perfectly knowledge of price and technology o Firms can freely enter or exit the market. As a result: o The actions of any single buyer or seller have a negligible impact on the market price o The take the market price as given Total and average revenue Total revenue for a firm is the selling price times the quantity sold: TR = P * Q Total revenue is proportional to the amount of output The only way to influence total revenue for firms if by varying their level of output. Average revenue tells us how much revenue a firm receives for the typical unit sold. o Average revenue is total revenue divided by the quantity sold. o By definition, average revenue equals the price of the good. Marginal revenue
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This note was uploaded on 12/08/2009 for the course TEFLER ADM1300 taught by Professor Koppel during the Fall '09 term at University of Ottawa.

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Nov 26, Firms in Competitive Markets - Firms in Competitive...

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