Economics: Market Structures, Revenue, and Cost Analysis

Marginal Cost

CHANGE in Total Cost / CHANGE In Quantity Produced

Total Revenue

Sales Price x Quantity Demanded or Sold

Marginal Revenue

CHANGE in Total Revenue / CHANGE in Quantity Demanded or Sold

Competitive Market

No individual buyer or seller has any influence over price

Competitive Market Characteristics

Many buyers and sellers, Identical product, Marginal Revenue = Price, Marginal Revenue is CONSTANT, Horizontal Demand Curve

Monopoly

Single seller dominates the market

Monopoly Characteristics

Product has no close substitutes, Sales Price < Marginal Revenue, Downward Sloping Demand Curve

Oligopoly

A few large sellers dominate the market

Oligopoly Characteristics

Sales Price > Marginal Revenue, Downward Sloping Demand Curve

Monopolistic Competition

Many sellers sell similar, but NOT identical products and have some control over price

Economic Loss in the Short Term

Fixed Costs

Shutdown Price

Minimum average variable cost (AVC)

Shutdown Price Calculation

Variable Cost / Quantity Demanded or Sold

Total Cost

Fixed Cost + Variable Cost

Lowest Price for Production

Lowest price at which a firm will continue to produce their product before it becomes not economical

Breakeven Price

Minimum average total cost (ATC)

Breakeven Price Calculation

Total Cost / Quantity Demanded or Sold

Maximizing Profit Condition

Profit is maximized when Marginal Revenue = Marginal Cost

Profit Decision

Profit = Total Revenue - Total Cost

Total Revenue Calculation

Price x Quantity Sold

Total Cost Calculation

Fixed Costs + Variable Costs

Short-Term Decision

Compare the Price to AVC

Long-Term Decision

Compare the Price to ATC