EC120 Lecture Notes - Lecture 14: Marginal Revenue, Profit Maximization, Market Power

• School: WLU
• Department: Economics
• Course: EC120
• Professor: Amjad Rabi

Document Summary

Goal of this chapter is to examine how firms make production decisions in competitive markets. Competitive market - market in which there are many buyers and many sellers so that each has a negligible impact on the market price (price takers) There are many buyers and sellers in the market. The goods offered by the various sellers are largely the same. Firms can freely enter or exit the market. A firm in a competitive market tries to maximize profit. Average revenue tells us how much revenue a firm receives. Average revenue (ar): total revenue divided by the quantity. Marginal revenue (mr): the change in total revenue from an additional unit sold. For competitive firms, marginal revenue equals the price of the good. Profit maximization and the competitive firm"s supply curve. Let"s examine how the firm maximizes profit by choosing the quantity it. Need to bring costs from chapter 13 so we can look at both costs and supplied revenues.