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Canada (161,368)
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ECON 1B03 (303)
Chapter 14

Chapter 14

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Usman Hannan

CHAPTER 14: FIRMS IN COMPETITIVE MARKETS What is a Competitive Market? The Meaning of Competition - competitive markets: 1) have many buyers and many sellers 2) the goods offered by the various sellers are largely the same - the actions of a single buyer or seller has minimal affect on the market price - sometimes considered a characteristic: 3) firms can freely enter or exit the market in the long run The Revenue of a Competitive Firm - total revenue is proportional to the amount of output (the price will not change) - for all firms the average revenue (revenue/quantity) equals the price of the good - for competitive firms the marginal revenue (change in revenue/additional unit sold) equals the price of the good Profit Maximization and the Competitive Firm’s Supply Curve A Simple Example - compare the marginal revenue and the marginal cost from each unit produced - as long as marginal revenue > marginal cost, increasing the products raises profit The Marginal-Cost Curve and the Firm’s Supply Decision - firms price = marginal revenue + average revenue - to reach profit maximization follow.. 1) if MR>MC increase the output produced 2) if MR
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