ECON 201 1nd Edition Lecture 16 Outline of Current Lecture I Perfect Competition II Characterize Competition III The implication of Perfect Competition IV Profit Maximizing Level of Output V Marginal Revenue Current Lecture I II III IV V Perfect Competition a Competition rivalry and market structure b A perfectly competitive market is one in which economic forces operate unimpeded Characterize Competition a Both buyers and sellers are price takers b The number of firms is large c There are no barriers to entry exit d The firms products are identical e There is complete information f Firms are profit maximizers The implication of Perfect Competition a Market Demand and supply are as usual D is downward sloping and S is upward sloping b Firm supply in P C is that portion of its short run marginal cost curve above average variable cost c A perfectly competitive firm s demand schedule is perfectly elastic Profit Maximizing Level of Output a The goal of the firm is to maximize profits b Profit total rev total cost c Price taker How much should I produce to maximize profit d A firm maximizes profit when MC MR e Marginal Revenue MR the change in total revenue associated with a change in quantity f Marginal Cost MC the change in total cost associated with a change in quantity Marginal Revenue a A perfect competitor accepts the market price as given These notes represent a detailed interpretation of the professor s lecture GradeBuddy is best used as a supplement to your own notes not as a substitute b As a result marginal revenue equals price MR P Average Revenue c To maximize profits a firm should produce where marginal cost equals marginal revenue which is P d MC MR produce less e MC MR produce more
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