ECON 1201 Lecture Notes - Lecture 12: Marginal Revenue, Marginal Cost, Demand Curve
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Chapter 12: in a perfectly competitive market all producers are price-taking producers and all consumers are price-taking consumers no one"s actions can influence the market price. Consumers are normally price-takers, but producers often are not. A third condition is often satisfied as well: free entry and exit into and from the industry: a producer chooses output according to the optimal output rule: produce the quantity at which marginal revenue equals marginal cost. For a price-taking firm, marginal revenue is equal to price and its marginal revenue curve is a horizontal line at the market price. It chooses output according to the price- taking firm"s optimal output rule: produce the quantity at which price equals marginal cost. However, a firm that produces the optimal quantity may not be profitable: a firm is profitable if total revenue exceeds total cost or, equivalently, if the market price exceeds its break-even price minimum average total cost.