ECO100Y1 Study Guide - Competitive Equilibrium, Economic Equilibrium, Marginal Revenue

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19 Jul 2013
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Do not produce this unit and decrease production. When mr < mc, revenue from last unit produced < cost of last unit produced. Average revenue (ar): ar = tr/q = (p*q)/q = p. Any profit-maximizing firm will produce at a level output at which: p avc and mc = mr. Note: when mr > mc, revenue from last unit produced > cost of last unit produced. The competitive firm equilibrium occurs at p = mc. Given price (p), the firm chooses the quantity supplied to maximize profit when. P = mc (since p = mr and mr = mc) The mc function above minavc is the supply function for the competitive firm. Changes in short-run equilibrium: change in demand (ex: increase in demand, change in variable costs (ex: increase in variable cost, change in fixed cost (ex: increase in fixed cost)

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