Textbook Notes (368,566)
Canada (161,966)
Economics (14)
01:220:102 (14)
Chapter 13

Chapter_13.docx

3 Pages
62 Views
Unlock Document

Department
Economics
Course
01:220:102
Professor
Thomas Prusa
Semester
Fall

Description
Chapter 13- Perfect Competition and the Supply Curve Perfect Competition  Price-taking producer- producer whose actions have no effect on the market price of the good or service it sells  Price-taking consumer- consumer whose actions have no effect on the market price of the good or service he or she buys Defining Perfect Competition  Perfectly competitive market- market in which all market participants are price- takers  Consumers are almost always price-takers, but this is often not true of producers  Perfectly competitive industry- industry in which producers are price-takers Two Necessary Conditions for Perfect Competition 1. For an industry to be perfectly competitive, it must contain many producers, none of whom have a large market share 2. Industry can be perfectly competitive only if consumers regard the products of all producers as equivalent  Producer’s market share- fraction of the total industry output accounted for by that producer’s output  A good is a standardized produce (commodity) when consumers regard the products of different producers as the same good Free Entry and Exit  Perfectly competitive industries- easy for new firms to enter the industry or for firms that are currently in the industry to leave  No obstacles in the form of government regulations; no limited access to key resources; no additional costs associated with shutting down a company and leaving the industry  Free entry and exit- when new producers can easily enter into an industry and existing producers can easily leave the industry Production and Profits Using Marginal Analysis to Choose the Profit-Maximizing Quantity of Output  Marginal revenue- change in total revenue generated by an additional unit of output o MR= change in TR/ change in Q  Optimal output rule- profit is maximized by producing the quantity of output at which the marginal revenue of the last unit produced is equal to its marginal cost  Price-taking firm’s optimal output rule- price-taking firm’s profit is maximized by producing the quantity of output at which the market price is equal to the marginal cost of the last unit produced  Marginal revenue curve shows how marginal revenue varies as output varies When is Production Profitable?  Profit= TR-TC o If the firm produces a quantity at which TR > TC, the firm is profitable o If the firm produces a quantity at which TR = TC, the firm breaks even o If the firm produces a quantity at which TR < TC, the firm incurs a loss  Average revenue = TR/Q o If the firm produces a quantity at which P > ATC, the firm is profitable o If the firm produces a quantity at which P = ATC, the firm breaks even o If the firm produces a quantity at which P < ATC, the firm incurs a loss  Rule for determining whether a producer of a good is profitable depends on a comparison of the market price of the good to the producer’s break-even price- its minimum average total cost o Whenever the market price exceeds minimum average total cost, the producer is profitable o Whenever the mar
More Less

Related notes for 01:220:102

Log In


OR

Join OneClass

Access over 10 million pages of study
documents for 1.3 million courses.

Sign up

Join to view


OR

By registering, I agree to the Terms and Privacy Policies
Already have an account?
Just a few more details

So we can recommend you notes for your school.

Reset Password

Please enter below the email address you registered with and we will send you a link to reset your password.

Add your courses

Get notes from the top students in your class.


Submit