EC120 Chapter Notes - Chapter 14: Average Cost, Average Variable Cost, Sunk Costs

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redgrasshopper342

10 May 2016

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Examine how firms make production decisions i competitive markets. Competitive market: market in which there are many buyers and many sellers so that each has a negligible impact on market price. E. g. market of milk; 3 characteristics: there are many buyers and sellers in the market, goods offered by various sellers are largely the same, firms can freely enter/exit the market. For all firms, average revenue equals the price of the good. Marginal revenue: change in total revenue from an additional unit sold: mr = tr / When q rises by 1 unit, tr rises by p dollars. For competitive firms marginal revenue equals the price of the good. How firm maximizes profit and how that decision leads to its supply curve. Mc curve crosses atc curve at minimum of atc. Price line is horizontal because firm is price taker. Price of firm"s output is same regardless of quantity the firm decides to produce.

Related Questions

Consider the following market demand schedule and total costs for a monopoly.

Q	P	TR	TC	MR	MC	Profit
0	45		4
1	40		9
2	35		19
3	30		39
4	25		61
5	20		91
6	15		130
7	10		172

a) Fill in the blanks.

b) How is the relationship between price and MR different between monopolistic and perfectly competitive markets?

c) Would the demand curve facing a monopolistic competitive market be more or less elastic than the demand curve facing a monopolist, why? Do firms in a monopolistically competitive market make long-run economic profits, why or why not?