UGA ECON 2106 - Final Exam Study Guide (5 pages)

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Final Exam Study Guide



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Final Exam Study Guide

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Pages:
5
Type:
Study Guide
School:
University of Georgia
Course:
Econ 2106 - Prin of Microecon
Prin of Microecon Documents

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ECON 2106 1st Edition Final Exam Study Guide Ch 14 Firms in Competitive Markets Difference in market structure shapes the pricing and production decisions of the firms that operate in these markets A market is competitive if each buyer and seller is small in comparison to the size of the market and therefore has little ability to influence market price If a firm can influence the market price of the good it sells it is said to have market power Competitive market sometimes called a perfectly competitive market has 2 characteristics 1 Many buyers and sellers in the market 2 Goods offered by the various sellers are largely the same a Each buyer and seller takes the market price as given 3 Sometimes as a characteristic Firms can freely enter or exit the market a This is a powerful force shaping the long run equilibrium Total revenue Price x Quantity o Because price is the same total revenue is proportional to the amount of output Average revenue total revenue divided by quantity sold o For all firms average revenue is equal to the price of the good Marginal revenue the change in total revenue from an additional unit sold o For competitive firms marginal revenue equals the price of the good If marginal revenue is greater than marginal cost then production should be increased if marginal revenue is less than marginal cost then production should be decreased Cost curves o Marginal cost MC upward sloping o Average Total Cost ATC u shaped o Price P horizontal Because competitive market firms are price takers 3 General Rules for Profit Maximization 1 MR MC increase output 2 MR MC decrease output 3 MR MC profit maximization level of output The marginal cost curve is also the competitive firm s supply curve An increase in the price will lead to an increase in production Shutdown a short term decision not to produce anything during a specific period of time because of current market conditions Exit a long term decision to leave the market Sunk Cost cost you have to pay even if



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