ECO 201 Chapter Notes - Chapter 12: Marginal Cost, Average Variable Cost, Perfect Competition
Document Summary
Price taking producers: producers action cannot affect the market price of the good or service. Price taking consumer: consumer who cannot influence the market price of the good or service by his/her actions. Perfectly competitive market: both consumers and producers are price takers. Neither consumption decisions by individual consumers nor production decisions by individual producers affect market price of a good. Perfectly competitive industry: industry in which producers are price takers. Industry has to be perfectly competitive, it must contain many producers, none of whom have large market shares. Market shares: fraction of the total industry output accounted for by the producer"s output. Standardized product: product which consumers regard as the same even though it comes from different producers. Commodity: a standardized product is known as a commodity. Free entry and exit: it is easy to become a part of the market, and easy to leave the market. Optimal output rule: profit is maximized by producing the marginal cost.