ECO 201 Lecture Notes - Lecture 11: Average Variable Cost, Marginal Revenue, Market Power
37 views2 pages
Document Summary
Many firms selling identical products to many buyers. Established firms don"t have advantages over new ones. Sellers and buyers are well informed about prices. Occurs when minimum efficient scale is relative to market demand. As minimum efficient scale increases relative to market demand, the number of firms decreases. In perfect competition, each firm is a price taker. Each firm produces a perfect substitute and demand is perfectly elastic. A firm"s marginal revenue is change in total revenue resulting from a one unit increases in quantity sold. At low level outputs, the firm incurs an economic loss. Profit maximized by producing the output at which product = marginal revenue. Profit = production minus average total cost times quantity. =production minus average variable cost times quantity minus total fixed cost. If production is less than minimum of average variable cost, the firm shuts down temporarily and incurs a loss equal to total fixed cost.
Get access
Grade+20% off
$8 USD/m$10 USD/m
Billed $96 USD annually
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers
Class+
$8 USD/m
Billed $96 USD annually
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
30 Verified Answers