ECON 1B03 Chapter Notes - Chapter 1: Perfect Competition, Marginal Revenue, Takers

• School: McMaster University
• Department: Economics
• Course: ECON 1B03
• Professor: Hannah Holmes

Document Summary

Perfectly competitive market: firms can freely enter or exit the market. Many buyers and many sellers who act independently. No barriers to entry such as patents. Actions of any single buyers or seller in market has no impact on market price. Market demand and supply determine price and every firm takes the market price as given-they are price takers. Average revenue: tells us how much revenue a firm receives for the typical unit sold. It is the total revenue divided by the quantity sold. (pq/q, ar=p) Marginal revenue: the change in total revenue from an additional unit sold. Mr is the slope of the total revenue function. Since tr=pq and p is given (because firms are price takers), if we increase q by 1 unit, tr will increase by the p of the good. So, mr=p for a perfectly competitive firm. (only true for competitive firms that are price takers).