ECO100Y5 Lecture Notes - Lecture 20: Perfect Competition, Monopolistic Competition, Market Power
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ECO100Y5 Full Course Notes
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How much a firm has power to influence market prices. Perfectly competition (price takers) no market power. Price taker the market decides p* and at p*, each firm decides their own q* or how much they will sell. Marginal revenue (mr) = change in tr/change in quantity = p* To maximize profit firm must find quantity where there is the largest gap between tr and tc and produce there. If mr > mc profit will increase for producing the next good. If mr < mc profit will decrease for producing the next good. Firms want to maximize total profit not per-unit profit. Average per unit profit = p - atc. If price equals to minimum atc than profit = 0. If price > atc, then firm has positive profit. If price < atc, then firm has negative profit. Productive efficiency the situation in which a good or service is produced at the lowest possible cost.