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Chapter 14 Lecture Outline - Economics 101H Vandan Desai...

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Economics 101H Vandan Desai P a g e | 1 Chapter 14: Firms in Competitive Markets (Lecture Outline) -------------------------------------------------------------------------------------------------------------------------- I. What is a Competitive Market? A. A perfectly competitive market has the following characteristics: i. There are many buyers and sellers in the market ii. The goods offered by the various sellers are largely the same ( homogenous ) iii. Firms can freely enter or exit the market B. As result of its characteristics, perfectly competitive market has following outcomes : i. The actions of any single buyer or seller in the market has negligible impact on the market price ii. Each buyer and seller takes the market price as given C. A competitive market has many buyers and sellers trading identical products ( perfect substitutes ) so that each buyer and seller is a price taker (must accept market price) D. Total revenue for a firm is the selling price times the quantity sold i. TR = P x Q ii. Proportional to the amount of output E. Average revenue tells us how much revenue a firm receives for the typical unit sold i. Total revenue divided by quantity sold ii. AR = TR / Q = Price iii. In all firms, average revenue equals the price of the good F. Marginal revenue is the change in total revenue from an additional unit sold i. MR = glyph507TR / glyph507Q = Price ii. For competitive firms, marginal revenue equals
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