ECON101 Chapter Notes - Chapter 12: Marginal Revenue, Perfect Competition, Marginal Cost
15 Jun 2018
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Chapter 12:
Perfect Competition:
- Many firms sell identical products to many buyers
- There are no restrictions on entry into the market
- Established firms have no advantage over new ones
- Sellers and buyers are well informed about prices
Minimum Efficient Scale: The smallest output at which long-run average cost
reaches its lowest level. When minimum efficient scale is small, there is room in
the market for many firms.
Price Taker: A firm that cannot influence the market price because its production
is an insignificant part of the total market.
Total Revenue: The price of its output multiplied by the number of units of output
sold.
Marginal Revenue: The change in total revenue that results from a one-unit
increase in the quantity sold. In perfect competition, the fir’s argial reeue
equals the market price.
Max Economic Profit: Occurs when marginal revenue (MR, which equals price in
perfect competition) equals marginal cost (MC, must be increasing).
Economic Loss: = TFC + Q(AVC – P)
Shutdown Point: The price and quantity at which a firm is indifferent between
producing and shutting down.
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Document Summary
Many firms sell identical products to many buyers. There are no restrictions on entry into the market. Established firms have no advantage over new ones. Sellers and buyers are well informed about prices. Minimum efficient scale: the smallest output at which long-run average cost reaches its lowest level. When minimum efficient scale is small, there is room in the market for many firms. Price taker: a firm that cannot influence the market price because its production is an insignificant part of the total market. Total revenue: the price of its output multiplied by the number of units of output sold. Marginal revenue: the change in total revenue that results from a one-unit increase in the quantity sold. In perfect competition, the fir(cid:373)"s (cid:373)argi(cid:374)al re(cid:448)e(cid:374)ue equals the market price. Max economic profit: occurs when marginal revenue (mr, which equals price in perfect competition) equals marginal cost (mc, must be increasing). Economic loss: = tfc + q(avc p)
