ENG ELC 220 Lecture Notes - Lecture 8: Monopolistic Competition, Substitute Good, Marginal Revenue
23 Oct 2020
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Micro chapter 8: supply in a competitive market: market structures and perfect competition in the short run. Four types of markets: perfect competition, monopolistic competition, oligopoly, monopoly. Firms are price takers they can only decide what q they supply! Demand curve is perfectly elastic at the market p* Large number of firms (no impact on market price p*) All firms produce identical product (output = perfect substitutes) No barriers to entry: profit maximization in a perfectly competitive market. Profit= total revenue total cost firm maximizes profit by choosing output level. = tr tc or = p x q atc x q. Profit is positive only when p> atc. Marginal cost= addition to total cost of producing one more unit of output: Marginal revenue= additional revenue from selling an additional unit. In a perfectly competitive market, marginal revenue equals market price: mr=p. Profit maximization where mc= p (marginal cost = price: measuring a firm"s profit.
