Chapter 14 Firms in Perfect Competition/ Competitive Markets Things to Know Consumer has the power Definitions Formulas ● Total revenue (sales) = price * Quantity ● Average Revenue = total revenue / quantity ○ Bonus : Average Revenue = price if and only if in perfect competition ● Marginal Revenue = change in revenue / change in quantity ○ If everything has to be priced the same, the change will be zero ● Marginal Cost = change in total cost/ change in quantity ● Profit maximization is where marginal revenue = marginal cost Characteristics of competitive markets 1. Many buyers and sellers 2. Homogeneous good or service 3. Low barrier to entry (freely enter or exit the market) 4. Businesses have no control over price (consumer have all the power) 5. No non price competition a. No adversivering Relationship between MR, MC and Profit When marginal revenue is greater than marginal cost, quantity and profit increase i. MR>MC : Quantity increases, Profit increases b.