Perfect competition

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10 Terms

1
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Competitive market characteristics

  • Easy entry for firms, large numbers of buyers and sellers, firms are price takers, homogenous product

2
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Total revenue

#of goods sold x price sold at

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Average revenue

Total revenue / quantity sold

4
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Marginal revenue

Change in total revenue resulting from the sale of one or more unit

TR/Q

5
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Characteristics in the long run for firms

  • no fixed costs

  • all costs are variable

  • firms can leave/ enter

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How to maximize profit

MR=MC

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When a firm should shut down

price < AVC

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When a firm should keep producing

Price > AVC

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MR>MC

Firm can still increase profits by producing more

10
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MR<MC

Selling more only increases costs. Shutdown point

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