Firms in Competitive markets CK hapter 14
Firms in Competitive Markets Chapter 14
The Meaning of competition a perfectly competitive market has the following characteristics There are many buyers and sellers in the market The goods offered by the various sellers are largely the same Firms can freely enter or exit the market (which require inputs can freely flow among markets
The Meaning of Competition • A perfectly competitive market has the following characteristics: – There are many buyers and sellers in the market. – The goods offered by the various sellers are largely the same. – Firms can freely enter or exit the market (which require inputs can freely flow among markets)
The Meaning of competition as a result of its characteristics the perfectly competitive market has the ollowing outcomes The actions of any single buyer or seller in the market have a negligible impact on the market P orIce Each buyer and seller takes the market price as given o Buyers and sellers in competitive markets are said to be price takers Buyers and sellers must accept the price determined by the market
The Meaning of Competition • As a result of its characteristics, the perfectly competitive market has the following outcomes: – The actions of any single buyer or seller in the market have a negligible impact on the market price. – Each buyer and seller takes the market price as given. • Buyers and sellers in competitive markets are said to be price takers. – Buyers and sellers must accept the price determined by the market
Revenue of a Competitive Firm Total revenue for a firm is the selling price times the quantity sold. TR=(PX Q) Total revenue is proportional to the amount of output Average revenue tells us how much revenue a firm receives for the typical unit sold o In perfect competition average revenue equals the price of the good
Revenue of a Competitive Firm • Total revenue for a firm is the selling price times the quantity sold. TR = (P X Q) • Total revenue is proportional to the amount of output. • Average revenue tells us how much revenue a firm receives for the typical unit sold. • In perfect competition, average revenue equals the price of the good
Revenue of a Competitive Firm Marginal revenue is the change in total revenue from an additional unit sold MR=△TR/AQ o For competitive firms, marginal revenue equals the price of the good
Revenue of a Competitive Firm • Marginal revenue is the change in total revenue from an additional unit sold. • MR =DTR/DQ • For competitive firms, marginal revenue equals the price of the good