Chapter 15 - Perfect Competition and the Supply Curve

ECON:1100 Final Exam

Total revenue formula

TR=P*Q

Marginal revenue

change in total revenue generated by an additional unit of input

Formula of MR

change in TR / change in quantity

In a competitive market what is the marginal revenue?

It is the goods market price

Optimal output rule

profit is maximized by producing the quantity of output at which the MR of the last unit produced is equal to its MC

What happens to profit is MR is greater than MC?

producing will add profit

What happens to profit when MC is greater than MR?

producing less will add profit

When is production profitable?

• TR > TC, the firm is profitable

• TR = TC, the firm breaks even

• TR < TC, the firm incurs loss

• produces at quantity when P > ATC, firm is profitable

• produces at quantity when P < ATC, firm incurs loss

• produces at quantity at which P = ATC, firm breaks even

Break-even price of a comp. fim

minimum ATC, the firm earns zero profit only if the the market price is equal to that value

Shut-down price

minimum AVC

Industry supply curve

the relationship between the price of a good and total output of industry

Short-run industry SC

how quantity supplied depends on the market price given a fixed number of producers

Short-run market equilibrium

when quantity supplied and quantity demanded are equal, taking the number of producers as given