6. Production, Costs & Revenue - AR & MR Flashcards
What are the two different types of market?
Perfectly competitive market and imperfectly competitive market
What are the necessary conditions for a perfectly competitive market?
Homogenous goods, perfect information, many buyers and sellers and no barriers to entry or exitFirms who operate in these conditions are price takers
Why are firms are price takers in a perfectly competitive market?
They’re unable to raise the price because consumers would simply switch to other firms in the market and they can’t lower the price bc other firms will follow them so they’ll sell the same quantity at lower prices
What is total revenue?
Total revenue is the price of goods times by the quantity of goods sold
What is average revenue?
Average revenue is the total revenue divided by the number of goods sold (quantity)
What is marginal revenue?
This is the extra revenue generated by selling one extra good or unit
What shape will the average revenue and marginal revenue curve be in a perfectly competitive market and why?
The marginal revenue curve and average revenue curve which is also demand will be a perfectly elastic (horizontal) line. This is because firms are price takers and bc of the conditions of perfectly competitive markets
Why are firms in in perfectly competitive market price makers?
Because in in perfectly competitive market that may not be a variety of sellers and the cells can differentiate their products meaning they have control over the price they charge
