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Chapter 14

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ECON 200

Microeconomics Chapter 14  Competitive market: many buyers and sellers trading identical products so that each buyer and seller is a price taker.  Price takers: buyers and sellers must accept the price the market determines.  Cant influence market price because production is such small part of total  Firms can freely enter and exit the market.  Competitive Firm  Small firms: can’t change market price, but can increase quantity to increase revenue.  Average revenue: total revenue (PxQ) divided by the quantity sold (x).  All firms’average revenue equals the price of the good.  Marginal revenue: the change in total revenue from an addition unit sold  Marginal revenue equals the price of the good (average revenue) (competitive markets)  If marginal revenue is greater than marginal cost you should increase production, and vice versa.  The marginal cost curve determines the quantity of the good the firm is supplying, so it is the supply curve.  Shut down: short run decision to not produce anything for a specific time period  Still pays fixed costs (sunk costs)  Shuts down if the revenue that it would earn from producing is less than its variable costs of production.  P(price)
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