ECON 101 Chapter Notes - Chapter 14: Sunk Costs, Marginal Revenue
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The meaning of competition: competitive market a. i. Goods offered are similar: perfectly competitive markets b. i. Revenue of a competitive firm: revenue a. i. Tr (total revenue) = p(price) x q(quantity) a. ii. Mr (marginal revenue) = change in tr / change in q. 14. 2 profit maximization and the competitive firm"s supply curve. A simple example of profit maximization: profit a. i. Mr = change in tc / change in q: change in profit c. i. The marginal-cost curve and the firm"s supply decision: maximizing profits a. i. The firm"s short-run decision to shut down: shut down tr < vc, shut down tr/q < vc/q, shut down p < avc. Split milk and other sunk costs: sunk cost a. i. Cost that has already been committed and cannot be recovered a. ii. Rent and other costs to keep factories etc. running a. ii. 2. If revenue does not exceed variable costs (short run), company should shut down resulting in sunk fixed costs.