GMS 402 Chapter Notes - Chapter 8: Marginal Revenue, Perfect Competition, Profit Maximization

• School: Ryerson University
• Department: Global Management Studies
• Course: GMS 402
• Professor: Bamidele Adekunle

Document Summary

I(cid:374) othe(cid:396) (cid:449)o(cid:396)ds, (cid:271)e(cid:272)ause the i(cid:374)di(cid:448)idual fi(cid:396)(cid:373) is (cid:862)s(cid:373)all(cid:863) (cid:396)elati(cid:448)e to the market, it has no perceptible influence on the market price. Figure 8 1 illustrates the distinction between the market demand curve and the demand curve facing a perfectly competitive firm. Fall 2017: the left-hand panel depicts the market, where the equilibrium price, pe, is determined by the intersection of the market supply and demand curves. If we let q represent the output of the firm, the total revenue to the firm of producing q units is r = pq. If revenues are a function of output: r = r(q, then, mr = dr/dq. Figure 8 3, where standard average and marginal cost curves have been drawn. If the market price is given by pe, this price intersects the marginal cost curve at an output of q*: thus, q* represents the profit-maximizing level of output.