Profit maximisation

what is perfect competition

when no firm can dominate the market, therefore they don’t influence the price of a product

with perfect competition, who has the power

the consumer since all firms are trying to sell their product at the cheapest possible price

how can we define profit

the difference in revenue and total costs

what is economies of scale

as the output increases, cost falls. Cost curve will we downwards sloping

what is diseconomies of scale

the more you produce, the more costly it becomes

what does a u shaped average cost curve show

the midpoint between economies of scale and diseconomies of scale

what is the break even point

the output level at which it will cost the firm the same amount of money to make one unit as they receive in revenue

how many break even points are there

2

what does the bottom of the u shaped average cost curve show

the lowest possible average cost, therefore the highest level of profit

what is marginal revenue

the change in revenue by increasing output by one unit

under perfect competition, what is the marginal cost curve

a horizontal line

what is the profit maximising point

where the marginal cost curve cuts the marginal revenue curve from below

why is the profit maximisation point not at the lowest point on the average cost curve

you can still make profit on the few extra additional units up to the second break even point

what changes the market price under perfect competition

entry and exit of firms