ECON 1B03 Study Guide - Final Guide: Budget Constraint, Nash Equilibrium, Offshoring

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ECON 1B03 Full Course Notes
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ECON 1B03 Full Course Notes
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Many buyers and sellers in the market. All are price takers since the market demand and supply determines price. Firms can freely enter or exit the markets. In perfect competition the marginal revenue is the price. Cost of producing one more unit = the amount gained from selling one more unit. In perfect competition p = mc = mr. No revenue is made during a shutdown. No variable costs but fixed costs are still paid. Firms should operate until the point where they cannot cover variable costs. When tr < tvc or when p < minimum avc. Sunk costs money that has been spent and cannot be recovered. Supply curve is the portion of mc above avc because any less and the firm is shut down. Demand curve is horizontal (perfectly elastic) as p > market price would lead to consumers to stop buying their products.

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