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Overheads 8 - Perfect Competition

Set mc mr and mc must cut mr from below this

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Unformatted text preview: TR = p x q Average Revenue (AR) AR = TR/q = (p x q)/q = p Marginal Revenue (MR) MR = Δ TR/Δ q Revenue Curves: (i) Short Run Decisions Profit Maximization Rules for All Firms (Short Run) 1. Set MC = MR and MC must cut MR from below. This determines the optimal output level. 2. AR > AVC in short ­run. This determines whether the firm should continue production. Profit Maximization for a Perfectly Competitive Firm 1. Set MC = MR. For a perfectly competitive firm MR = price (MR curve is horizontal). Thus, MC = MR = price for a perfectly competitive firm. A competitive firm’s supply curve is given by the portion of its marginal cost curve that is above its average variable cost curve. In perfect competition, the industry supply curve is the horizontal sum of the marginal cost curves (above the level of average variable cost) of all firms in the industry. Short Run Equilibrium in a Competitive...
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