CHAPTER 9 Flashcards
Marginal revenue
Additional revenue from more sales or from selling one more unit
Rule for smart business decisions
Choose when marginal revenues are greater than marginal costs
One price rule
Products that are easily resold tend to have a single price in the market
Price takers demand curve
Is also a marginal revenue curve and marginal revenue equals price
For perfect competition
Price making businesses
Monopoly, oligopoly, monopolistic competition
Marginal revenue per unit is less than price.
Because of the one price rule businesses must lower price on all units not just new sales
Price cuts
Increase total revenue but marginal revenue from each additional unit sold decreases
Constant marginal costs
Marginal cost curve is horizontal
Increasing marginal cost
Marginal cost curve is upward sloping (linear line)
Marginal costs businesses
Businesses operating near capacity or shifting to more expensive inputs, have increasing marginal costs to increase output
Businesses not operating near capacity
Have constant marginal costs to increase output
Intersection of MR and MC
Is key to maximum profits
Economic profits
= revenues - all opportunity costs
= revenues - ( obvious + normal profits)
Fixed costs
Do not change with the quantity of output produced
Maximum profits recipe
Estimate marginal revenues and marginal costs and set the highest price allowing you to sell for which marginal revenue is greater than marginal cost
Price discrimination
Charging different customers different prices for the same product
