Chapter 14 Competitive MArkets

Chapter 14 Competitive MArkets - Chapter 14; Competitive...

Info iconThis preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Chapter 14; Competitive Markets Equations Profits= TR – TC TR = P x Q TC = ATC x Q Π = P x Q – ATC x Q (P - ATC) x Q AR = TR/Q = P MR = TR/ Q Characteristics in a Perfect Competition 1. Many buyers and many sellers. 2. The goods offered for sale are largely the same. 3. Firms can freely enter or exit the market. price taker ” – takes the price as given. MR = P for a Competitive Firm A competitive firm can keep increasing its output without affecting the market price. So, each one-unit increase in Q causes revenue to rise by P , i.e. , MR = P . MR = P is only true for firms in competitive markets Profit Maximization If increase Q by one unit, revenue rises by MR , cost rises by MC If MR > MC , then increase Q to raise profit If MR < MC , then reduce Q to raise profit MC and the Firm’s Supply Decision Rule: MR = MC at the profit-maximizing Q . At Q a , MC < MR . So, increase
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
Background image of page 2
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 2

Chapter 14 Competitive MArkets - Chapter 14; Competitive...

This preview shows document pages 1 - 2. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online