ECO105Y1 Study Guide - Marginal Revenue, Market Power, Monopolistic Competition

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Chapter 8: pricing for profits (marginal revenue and marginal cost) Marginal revenue: additional revenue from selling one more unit or from extension of sellers. The revenue you get from selling one more product or service. Depends on market structure, how competitive your industry is, and whether your business is a price taker or price maker. Fixed costs: (suk costs): do not change with changes in quantity of output. For price-taking businesses (extreme competition), marginal revenue = price. For price makers (monopoly, oligopoly, monopolistic competition), marginal revenue is less than price. Because of one-price rule, businesses must lower price on all units, not just new sales. Even when price cut increases total revenue, marginal revenue from each additional unit sold decreases as sales increase. As output increases, what happens to marginal costs depends on supply side of business"s cost. Businesses operating near capacity, or shifting to move expensive sources of inputs, have increasing marginal costs to increase output.

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