exam 2 econ reading notes-2

exam 2 econ reading notes-2 - 20:26 Firms in Competitive...

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20:26 Firms in Competitive Markets Differences in market structures shape the pricing and production decisions of the firms  that operate in these markets A market is competitive, if each buyer and seller is small compared to the size of the  market and, therefore, has little ability to influence market prices If a firm can influence the market price of the good it sells, it is said to have market  power A market supply curve is tightly linked to firms’ costs of production What Is a Competitive market? The Meaning of Competition Competitive market- a market with many  buyers and sellers trading identical products  so  that each buyer and seller is a price taker (must accept the price the market determines) The actions of any single buyer or seller in the market have a negligible impact on the  market price Firms can freely enter or exit the market (a powerful force shaping the long run  equilibrium The Revenue of a Competitive Firm Total revenue is proportional to the amount of output (if output doubles, so does  revenue) Average revenue= total revenue/ quantity sold Marginal revenue- the change in total revenue from an additional unit sold For competitive firms, marginal revenue equals the price of the good Profit Maximization and the competitive Firm’s Supply Curve How a competitive firm maximizes profit and how that decision determines its supply  curve A simple example of profit maximization Can find the profit maximizing quantity by comparing the marginal revenue and marginal  cost from each unit produced
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This note was uploaded on 01/18/2012 for the course ECON 201 taught by Professor C.liedholm during the Summer '07 term at Michigan State University.

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exam 2 econ reading notes-2 - 20:26 Firms in Competitive...

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