Chapter 14- Market power: a firm is said to have market power if it can influence the market price of the good it sells- Competitive market (perfectly competitive market): a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker. o There are many buyers and many sellers in the market.o The goods offered by the various sellers are largely the same.o Firms can freely enter or exit the market (SOMETIMES)- Average revenue: total revenue divided by quantity soldo For all firms, average revenue equals the price of the good- Marginal revenue: the change in total revenue from an additional unit soldo For competitive firms, marginal revenue equals the price of the good- Cost Curveso Marginal cost curve (MC) is upward slopingo Average total cost (ATC) is U-Shapedo Marginal cost curve crosses the average total cost curve at the minimum average total cost curve- This analysis yields three general rules for profit maximizationo If marginal revenue is greater than marginal cost, the firm should increase its outputo If marginal cost is greater than marginal revenue, the firm should decrease its outputo At the profit-maximizing level of output, marginal revenue and marginal cost are exactly equal- Because the firm’s marginal-cost curve determine the quantity of the good the firm is willing to supply at any price, the marginal-cost curve is also the competitive firm’s supply
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