ECON 200 Lecture Notes - Lecture 9: Sunk Costs, Marginal Revenue, Profit Maximization

• School: University of Arizona
• Department: Economics
• Course: ECON 200
• Professor: Ryan Johnson

Document Summary

A market is competitive if each buyer and seller is small compared to the size of the market and has little ability to influence market prices. Market power: occurs if a firm can influence the market price of the good it sells. There are two characteristics found in a competitive market. There are many buyers and many sellers in the market. The goods offered by the various sellers are largely the same. The actions of any single buyer or seller have negligible impact on the market price. Price takers: each buyer and seller takes the market price as given. A third condition is sometimes thought to characterize perfectly competitive markets. Firms can freely enter or exit the market. Total revenue in a competitive market is proportional to the amount of output. Average revenue: total revenue divided by the amount of output (p x q)/(q) Tells us how much revenue a firm receives for the typical unit sold.