ACTG 2010 Chapter Notes - Chapter 12: Perfect Competition, Opportunity Cost, Economic Surplus
12 Jul 2016
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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. How perfect competition arises: minimum efficient scale of a single producer is small relative to the market demand for the good or service. Room for many firms: each firm is perceived to produce a good or service that has no unique characteristics, so consumers don"t care which firm they buy from. Economic profit: total revenue minus total cost: total cost is the opportunity cost of production which includes normal profit. Marginal revenue: change in total revenue that results from a one-unit increase in quantity sold: demand, price and revenue (next page picture) A firm must decide: how to produce at minimum cost, what quantity to produce, whether to enter or exit the market.
