ECON102 Chapter Notes -Average Variable Cost, Marginal Revenue, Profit Maximization
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ECON102 Full Course Notes
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When the minimum efficient scale of a single producer is small relative to the market demand for the good/service. Minimum efficient scale: the smallest output at which long-run average cost reaches its lowest level in perfect competition, each firm produces a good that has no unique characteristics so consumers don"t care which firm"s good they buy. Price taker: a firm that cannot influence the market price because its production is an insignificant part of the total market if you sell it at higher than the market price, no one will buy from you. If you sell it at a lower price, then you will be sold out really quickly and lose the difference. The firm"s decisions how to produce at minimum cost recall: operating with the plant that minimizes long-run average cost. Whether to enter or exit a market. The firm"s output decision economic profit = tr tc.