EC120 Lecture 10: Perfect Competition
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If firms double quantity, revenue doubles: what happens if firms raise prices. Average revenue = total revenue/quantity = price. Marginal revenue (horizontal demand curve) = price = average revenue. Basic assumption firms maximize economic profit. What level of production (ie. quantity) is consistent with profit maximization. Q3 you are losing money on the last unit you sell and you will probably shut down if you continue. Q2 (cid:373)a(cid:396)gi(cid:374)al (cid:396)eve(cid:374)ue a(cid:374)d cost a(cid:396)e e(cid:395)ual to each othe(cid:396) a(cid:374)d it does(cid:374)"t (cid:373)atte(cid:396) if you sell the last unit. Q1 start producing there but you will continue to the right until you hit q2. Firm produces nothing pay fixed costs, no revenue. Cancel fixed costs, divide by quantity produce if: (cid:1842) . Short run no entry or exit of firms. Assume identical firms (though it is not necessary in the short-run) At any given price, add up quantity of supply of all firms: market supply is number of firms multiplied by firm-level supply.
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