ECO 1104 Chapter Notes - Chapter 14: Sunk Costs, Market Power, Marginal Revenue

• School: University of Ottawa
• Department: Economics
• Course: ECO 1104
• Professor: Gordon Lenjosek

Document Summary

Competitive market: competitive market: a market in which there are many buyers and many sellers so that each has a negligible impact on the market price (price taker). Ar: marginal revenue (mr): change in total revenue from an additional unit of output sold. For competitive firms, marginal revenue equals the price of the good. If firm sells one more (less) unit o output, tr increases (decreases) by p. That is not true in monopolized markets: average revenue (ar): total revenue divided by quantity sold. Revenue per unit sold: price taker: price that firm charges for its product is dictated by the market. It does not mean that the firm is making losses. If mr > mc, more should be produced. If mr < mc, less should be produced. If mr = mc, now firm is maximizing profits: example: At any q with m > mc, increasing q raises profit (q = 0, 1, 2)