Econ Module 6

Econ Module 6

• Competitive Market

  • Large number of buyers and sellers

  • Buy and sell goods that are similar

  • Buyers and sellers have equal information

  • No government 

• Results of CM

  • Not controlled by one person

  • Narrow “range of prices”

  • If a firm or a person buy small portions they can’t influence the price its pays

• A firm in CM

  • One of a large number of firms

  • All firms produce relatively the same products

  • Firms are free to enter and exit

  • TR = P X Q

  • TR and Q are proportional

  • Average Revenue (Ar)

    • AR = TR / Q or AR = P * Q/Q 

    • AR = P

  • Marginal Revenue (MR) 

    • revenue from an additional unit

    • MR = P

  • For firms in a competitive market

    • P = AR = MR

      • If MR > MC, Increase production

      • If MR < MC, decrease production

      • If MR = MC then the firm is maximizing profit

  • Firms want to maximize profit

    • Profit = TR - TC

  • Costs Curves 

    • MC increases

    • ATC is U-shaped

    • AVC is U-shaped

    • MC crosses ATC at the min

    • MC crosses AVC at the min