EC120 Chapter Notes - Chapter 14: Average Cost, Marginal Revenue, Market Power
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EC120 Full Course Notes
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The meaning of competition: competitive market: a market in which there are many buyers and sellers so that each has a. The revenue of a competitive firm: profit = total revenue total cost, the amount of output produced determines how much revenue is made. Doubling amount of product produced means doubling the revenue made: average revenue: total revenue divided by quantity sole. Equals the price of the good: marginal revenue: the change in total revenue from an additional unit sold. Profit maximization: profit maximizing quantity is found by comparing marginal revenue and marginal cost, as long as marginal revenue exceeds marginal cost increasing the quantity produced raises profit. If marginal revenue is greater than marginal cost, you should increase production of the product. Is marginal revenue is, less than marginal cost you should decrease production of the product. If marginal revenue is greater than marginal cost the firm should increase its output.