ECON 1B03 Lecture Notes - Lecture 19: Perfect Competition, Economic Equilibrium, Sunk Costs
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ECON 1B03 Full Course Notes
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Perfectly competitive market: many buyers/sellers in market, market demand and supply determine price, every buyer and firm takes the market equilibrium price as given (price takers, goods offered are identical, firms can freely enter or exit the market. Revenue: tr = pq (total revenue = (price)(quantity sold), tr curve is a linear function of q, profit equal tr tc, want to maximize the distance between the tr and tc curves- making sure. Tr is not less than tc or there would be a loss. Average revenue: ar is how much revenue a firm receives for a typical unit sold, total revenue divides by quantity sold, ar = tr = pq = p, q q. Mr = p for a perfectly competitive firm. This is only true for competitive firms that are price takers: profit maximization. A profit-maximizing firm will produce a quantity of output at the point where. Mr > mc, the firm should increase q.