ECON 010 Chapter Notes - Chapter 11: Xscale, Demand Curve, Marginal Revenue
Econ010 Chapter 11: Firms in Perfectly Competitive Markets
Perfectly competitive market: a market that meets the conditions of a)many
buyers and sellers b)all firms selling identical products c)no barriers to new firms
entering the market
Price taker: buyer or seller that is unable to affect the market price
Profit: total revenue minus total cost
Average revenue (AR): total revenue divided by quantity of product sold
Marginal revenue (MR): the change in total revenue from selling one more unit of
a product
Sunk cost: cost that has already been paid and that cannot be recovered
Shutdown point: minimum point on a firm’s AVC curve; if price falls below this
point, the firm shuts down production in the short run
Economic profit: firm’s revenues minus all its costs, implicit and explicit
Economic loss: the situation in which a firm’s total revenue is less than its total
cost, including implicit costs
Long run competitive equilibrium: situation in which the entry and exit of firms
has resulted in the typical firm breaking even
Long run supply curve: shows relationship in long run between market price and
quantity supplied
Productive efficiency: situation in which a good/service is produced at the lowest
possible cost
Allocative efficiency: state of the economy in which production represents
consumer preferences; in particular, every good/service is produced up to the point
where the last unit provides a marginal benefit to consumers equal to the marginal
cost of producing it
Characteristic
Perfect
Competition
Monopolistic
Competition
Oligopoly
Monopoly
# of Firms
Many
Many
Few
One
Type of
Product
Identical
Differentiated
Identical or
differentiated
Unique
Ease of Entry
High
High
Low
Entry blocked
Examples of
industries
Wheat
Apples
Clothing
Restaurants
Computer
Automobile
1st Class mail
Tap water
Perfectly competitive markets
-firms unable to control prices of goods sold
-firms unable to earn economic profit in long run
-many buyers and firms; all small relative to market
-no barriers to new firms entering market
-firms and buyers price takers
find more resources at oneclass.com
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Different x-scale
-demand curve for market: downward sloping (large units)
-demand curve for output of a single firm is horizontal (small units)
-
Pr ofit =TR −TC =PQ+ATC Q=Q(P+ATC)
-
AR =TR
Q
-
MR =TR
Q
-Price=MR=AV=demand curve
-profit maximizing level of output: MR=MC=Price in perfect competition
-no additional profit can be made; marginal increase in output would lower
profit
-diff between TR and TC is greatest and MR=MC true for any firm, perfectly
competitive or not
-firms maximize total profits not profits per unit, thus max profit is not when
distance btwn price and ATC is greatest but when TR and TC is greatest
find more resources at oneclass.com
find more resources at oneclass.com
Document Summary
Point, the firm shuts down production in the short run. Econ010 chapter 11: firms in perfectly competitive markets. Perfectly competitive market: a market that meets the conditions of a)many buyers and sellers b)all firms selling identical products c)no barriers to new firms entering the market. Price taker: buyer or seller that is unable to affect the market price. Average revenue (ar): total revenue divided by quantity of product sold. Marginal revenue (mr): the change in total revenue from selling one more unit of a product. Sunk cost: cost that has already been paid and that cannot be recovered. Shutdown point: minimum point on a firm"s avc curve; if price falls below this. Economic profit: firm"s revenues minus all its costs, implicit and explicit. Economic loss: the situation in which a firm"s total revenue is less than its total cost, including implicit costs.
