ECO 101 Chapter Notes - Chapter 14: Average Variable Cost, Marginal Revenue, Market Power

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sapphirehyena996

25 Aug 2016

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Document Summary

A market is competitive if each buyer and seller is small compared to the size of the market and has little ability to influence market prices. Market power- if a firm can influence the market price of the good it sells. Competitive market- a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker; firms can freely enter or exit the market. When there is free entry and exit in a competitive market, it is powerful force shaping the long- run equilibrium. A firm in a competitive market tries to maximize profit. Average revenue- total revenue divided by the quantity sold. For all types of firms, average revenue equals the price of the good. Marginal revenue- the change in total revenue from an additional unit sold (change in total revenue divided by change in quantity) For competitive firms, marginal revenue equals the price of the good.

Related Questions

1. Which of the following is a difference between a perfectly competitive market and a monopoly?

A. There are huge barriers to entry in a perfectly competitive market, while there are no barriers to entry in a monopoly.

B. The market demand curve faced by a perfectly competitive firm is horizontal, while the market demand curve in a monopoly is downward-sloping.

C. The sellers in a perfectly competitive market are price-makers, while a seller in a monopoly market is a price-taker.

D. The equilibrium price in a perfectly competitive market exceeds marginal revenue, while the equilibrium price in a monopoly equals marginal revenue.

2. Which of the following firms is likely to have the highest market power?

A. An oligopoly with homogeneous products

B. A monopoly

C. A monopolistic competitor

D. A perfectly competitive firm