ECON101 Lecture Notes - Lecture 13: Market Power, Marginal Revenue, Marginal Cost

• School: University of Alberta
• Department: Economics
• Course: ECON101
• Professor: J.Scott Beesley

Document Summary

Profit maximization and the competitive firm"s supply curve. Clinton richardson: for a competitive firm, the firm"s price equals both its average and marginal revenue, general rules for profit maximization: If marginal revenue is greater than marginal cost, the firm should increase its output. If marginal cost is greater than marginal revenue, the firm should decrease its output: at the profit-maximizing level of output, marginal revenue and marginal cost are exactly equal. In essence, because the firm"s marginal-cost curve determines the quantity of the good the firm is willing to supply at any price, it is the competitive firm"s supply curve. Spilt milk and other sunk costs: sunk cost a cost that has already been committed and cannot be recovered. The firm"s long-run decision to exit or enter a market: the firm exits the market if the revenue it would get from producing is less than its total costs, exit if tratc.