CAS EC 101 Lecture 24: Lecture 24- 26

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CAS EC 101 Full Course Notes
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CAS EC 101 Full Course Notes
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We want to construct a model as simple as possible, but not too simple. We will assume that these firms are price takers, that is there is nothing they can do to influence the price of the good that they sell. A price taker is a firm that is unable to affect the market price. A firm is likely to be a price taker when it sells a product that is exactly the same as every other firm. There are many buyers and sellers in the market. All buyers and sellers know prices charged by all sellers. The firms face prices and face cost curves, cannot alter their product, so the only choice left is how much they can make. If revenue increases faster than cost, they should increase output. If cost decreases faster than revenue, they should decrease output. Profit maximized where revenue and cost increase at the same rate, that is where price of product = marginal cost.

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