ECO100Y5 Chapter Notes - Chapter 9: Opportunity Cost, Competitive Equilibrium, Average Variable Cost
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ECO100Y5 Full Course Notes
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A market is said to be competitive when its firms have little or no market power. Total revenue(tr) total receipts from the sale of a product; average revenue (ar) Market price when all units are sold at the same price marginal revenue (mr) the change in a firm"s total revenue resulting from a change in its sales by one unit. For a competitive price-taking firm, the market price is the firm"s marginal (and average) revenue. Economic profit is the difference between total revenue and total cost. Rule 1: a firm should not produce at all if, for all levels of output, total revenue (tr) is less than total variable cost (tvc). At prices below this, a profit-maximzing firm will produce no output. Rule 2: if it is worthwhile for the firm to produce at all, the profit-maximising firm should produce the output at which marginal revenue equals marginal cost.
