ECON 1B03 Chapter Notes - Chapter 8: Perfect Competition, Market Power, Marginal Revenue
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ECON 1B03 Full Course Notes
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Perfect competition: a market structure typified by many small firms selling homogeneous output. (identical products) Consumers/firms are price takers; everyone knows that market e is the price that buyers will pay/producers will receive for every good bought and sold. Average revenue, ar: revenue generated by the sale of a typical unit of output. As tr = p * q, then ar = p. Marginal revenue, mr: the addition to the firm"s total revenue from the sale of another good. It is the slope of the total revenue. Tr is at the max when mr = 0. Mr = change in tr/ change in q. This is only true in perfect competition where everyone is a price taker. A profit maximizing firm will produce a quantity of output such that mr = mc. A perfectly competitive firm will produce a quantity of output such that p = mc. We know that profit = tr - tc.