14 Econ Class notes - Chapter 14 class notes 1 Competitive...

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Chapter 14 class notes 1. Competitive Market a. Meaning of competition i. Competitive Market- Market with so many buyers and so many sellers, trading identical products, so that each buyer and seller has no influence on the price. (Price takers) ii. Three characteristics of a competitive firm 1. There are many buyers and sellers (price takers, no market power) 2. Goods offered by sellers are identical (Homogeneity) 3. Firms can freely enter or exit the market (Free entry and Exit) b. Revenue of a competitive firm i. TR = P*Q ii. Average revenue = TR/Q=P iii. MR = Change in TR/Change in Q 2. Profit maximization a. Firms objective is to maximize profit b. Profit = TR-TC i. Maximize revenue when MR = MC, when making another product you gain nothing and lose nothing ii. Profit maximizing condition iii. If MR>MC, increasing production will increase profit iv. If MR<MC, decreasing production will increase profit v. MR=MC is the profit maximizing condition c. MC curve and supply i. MC curve is upward sloping.
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