Econ Study Session 10.26.10

Econ Study Session 10.26.10 - cost but we’re not covering...

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Econ Discussion Study Session Before Test 2 10/26/10 Competitive Markets (Characteristics): 1. lots of buyers/sellers 2. price takers (no one has ability to affect the price) 3. free entry + exit into market (no barriers of entry) 4. Perfect information (everyone knows all the prices of competitors and how they’re doing) 5. Product Homogeneous (everyone produces the same product ex. Gasoline is gasoline, doesn’t matter where you buy it) 6. Firms are profit maximizers MC = MR, at that point, price * quantity is total revenue At that quantity, ATC price * that quantity = Total Cost Total Cost – Total Revenue = Profit Where MC = MR is below ATC but above AVC is where we’re covering the variable
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Unformatted text preview: cost but we’re not covering the fixed costs as well. So the business will continue because perhaps demand will increase, but in the short run they’re losing money. MC = MR is below the AVC is where firm should exit because losing money for every output produced (shut down point) Supply curve for firm is the points above the shutdown point where MC = MR = AVC Normal Profit (Economic) = total revenue – total cost but includes opportunity cost Accounting Profit = Total Revenue – total cost (no opportunity cost). Always greater revenue in Accounting Profit...
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