ECON 201 Chapter Notes - Chapter 14: Average Variable Cost, Sunk Costs, Marginal Revenue
14 Feb 2017
School
Department
Course
Professor
Document Summary
Competitive market: a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker. Buyers and sellers in competitive markets must accept the price the market determines and, therefore, are said to be price takers. Firms can freely enter or exit the market. Much of the analysis of competitive firms does not require the assumption of free entry and exit because this condition is not necessary for firms to be price takers. When there is free entry and exit in a competitive market, it is a powerful force shaping the long-run equilibrium. A firm in a competitive market, like most other firms in the economy, tries to maximize profit (total revenue minus total cost) Average revenue: total revenue divided by the quantity sold. Average revenue is total revenue (p q) divided by the quantity (q). Therefore, for all types of firms, average revenue equals the price of the good.
