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CAS EC 101 Chapter Notes - Chapter 14: Marginal Revenue, Takers, Sunk Costs

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marooncrab512
5 May 2015
School
Boston University
Department
Economics
Course
CAS EC 101
Professor
All

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CAS EC 101 Full Course Notes
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CAS EC 101 Full Course Notes
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Document Summary

Learning objectives: know what it means to be a competitive firm, know the difference between revenue and profit. The meaning of competition: a competitive market has many buyers and sellers. The goods and services sold in a competitive market are homogeneous, or nearly identical. Both the firms and the sellers in a competitive market are price takers. This means that a single buyer or seller has no effect on the price. In a competitive market there are no barriers to entry, and firms can enter or exit the market freely. Profit maximization for a competitive firm: the competitive firm should produce until marginal cost = marginal revenue. If marginal revenue is greater than marginal cost, the firm can increase profit by increasing output: according to the figure below, if the firm is producing in q1, it should raise production. If the firm is producing at q2, it should lower production.

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Related Questions

What are the three conditions for a market to be perfectly competitive? For a market to be perfectly competitive, there must be:

A. many buyers and one seller, with the firm producing a product that has no close substitutes, and barriers to new firms entering the market.

B. many buyers and sellers, with firms selling similar but not identical products, with low barriers to new firms entering the market

C. many buyers and a few sellers, with all firms selling identical products, and no barriers to new firms entering the market.

D. many buyers and sellers, with all firms selling identical products, and no barriers to new firms entering the market.

E. many buyers and a small number of firms that compete, selling differentiated products, and barriers to new firms entering the market.

Which of the following is not characteristic of a perfectly competitive market?

A. There are many buyers and many sellers
B. Firms are price-takers
C. There are no barriers to entry
D. Firms advertise in order to distinguish their products and increase market share

Which of the following is not characteristic of a perfectly competitive market?

A. There are many buyers and many sellers
B. Firms are price-takers
C. There are no barriers to entry
D. Firms advertise in order to distinguish their products and increase market share