econ ch 9 outline - Kristin Chen Econ CH 9-Perfect...

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Kristin Chen 1. Perfect Competition a. Price-taking producers = actions have no effect on the market price of the good it sells i. Consider market price as given ii. In perfect competition, every producer is a price-taker b. Price-taking consumers = actions have no effect on the market price of the good he buys i. Market price is unaffected by quantity purchased c. Perfectly competitive market = all market participants are price-takers i. Neither consumption decisions nor production decisions by individuals affect the market price d. Perfectly competitive industry = producers are price takers 2. 2 necessary conditions for perfect competition a. 1) Many producers with small market shares i. Market share = fraction of the total industry output represented by that producer’s output b. 2) industry output is a standardized product i. A good is a standardized product or commodity when consumers regard the products of different producers as the same good c. Perfectly competitive industries are normally characterized by i. = when new producers can easily enter into or leave an industry 3. a. Total revenue = market price x quantity of output TR = P x Q b. Profit = total revenue – total cost Profit = TR – TC 4. Using marginal analysis to choose the profit-maximizing quantity of output a. Marginal revenue = the change in total revenue generated by an additional unit of output b. MR = ∆TR/∆Q c. Optimal output rule = profit is maximized by producing the quantity of output at which the marginal revenue of the last unit produced is equal to its marginal cost d. MR = MC @ optimal output e. Net gain = MR – MC f. Price taking firm’s optimal output rule = price-taking firms profit is maximized by producing the quantity of output at which the market price is equal to the marginal cost of the last unit produced g. Marginal revenue curve = shows how marginal revenue varies as output varies
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econ ch 9 outline - Kristin Chen Econ CH 9-Perfect...

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