Microeconomics-Ch. 14: Firms in Competitive Markets
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Created by:
USCTiff on June 16, 2012
Subjects:
Principles of Microeconomics, Mankiw 6 ed.
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7 terms
Terms | Definitions |
|---|---|
 market power | the ability of a firm to influence the market price of the good it sells. |
| Perfectly competitive market | -Many buyers and sellers (no one person or firm can effect price) -Goods are similar to identical (seen as perfect substitutes; perfectly elastic) -Firms can freely enter and exit the market -Firms are "price takers" (market determines the price) |
| average revenue | Total revenue divided by the quantity sold. (for firms in a PC market, AR=price of the good) |
| marginal revenue | change in total revenue from an additional unit sold. (for firms in a PC market, MR=AR=P) |
| maximum profit | a firm will maximize profit by producing the quantity at which marginal cost is equal to marginal revenue. |
| rules for profit maximization | -if MR>MC, firm should increase its output -if MC>MR, firm should decrease its output -At the profit-maximizing level of output, MR and MC are exactly equal. |
| PC firm's supply curve | in a PC firm, the supply curve is the same as the MC curve because the MC curve determines how much a firm is willing to supply at a given cost. |
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