Economics 1021A/B Chapter Notes - Chapter 12: Variable Cost, Marginal Revenue, Opportunity Cost

• School: Western University
• Department: Economics
• Course: Economics 1021A/B
• Professor: Jeannie Gillmore

Document Summary

Arises if the minimum efficient scale (smallest output at which long-run average cost reaches its lowest level) of a single producer is small relative to the market demand for the good or service. Each firm is a price taker (a firm that cannot influence the price of a good or service because its production is an insignificant part of the total market) because products are so identical. In perfect competition, the firm"s marginal revenue equals the market price: demand: firms can sell any quantity it chooses at the market place, so the demand curve for the firm"s product is a horizontal line at market price. Demand for the firm"s product is perfectly elastic. Market demand for the product depends on the substitutability of the good to other goods. A product from one from is a perfect substitute for a sweater from any other firm. Firms" decisions: goal of competitive firms is to maximize economic profit.