Economics 1021A/B Chapter Notes - Chapter 12: Average Variable Cost, Perfect Competition, Fixed Cost

• School: Western University
• Department: Economics
• Course: Economics 1021A/B
• Professor: Nicholas Kanhert

Document Summary

What is perfect competition, perfect competition is market in which: If constant straight line upward curving: marginal revenue: the change in revenue that results form a. In perfect competition the firms marginal revenue equals the market price one: demand for the firm"s product. If marginal revenue is less than marginal cost then the revenue from selling one more unit is less than the cost of producing that unit and a decrease in output increases economic profit. If marginal revenue equals marginal cost economic profit is maximized and either decrease or increase in output decreases economic profit: temporary shutdown decision. If the firm does not produce q=0 so economic loss is equal to total fixed cost. Insert figure 12. 7: profits and losses in the short run, economic profit (or loss)= (p-atc) x q. If price equals atc firm breaks even- entrepreneur makes normal profit: three possible short run outcomes, economic profit. If price exceeds atc firm gets economic profit: breakeven.