CAS EC 101 Chapter Notes - Chapter 14: Average Variable Cost, Sunk Costs, Marginal Revenue
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CAS EC 101 Full Course Notes
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Competitive market (perfectly competitive market): many buyers and sellers, offers the same goods and firms can enter and exit freely. Actions of single buyer or seller has a negligible impact on the market place because of large markets. The price does not depend on the number of goods the firms produce. Total revenue is proportional to the amount of output. For all firms, average revenue equals the price of the good. Marginal revenue is fixed because it equals the price of the good. Profit maximization and the competitive firm"s (pat"s dick is firm) supply curve. Marginal revenue must be higher than marginal cost to raise profit. The marginal-cost curve and the firm"s supply decision. If mr is greater than marginal cost, the firm should increase its output. If mc is greater than mr, the firm should decrease its output. At the profit-maximizing level of output, mr and mc are exactly equal.