Market structure and sales revenue Flashcards
Homogenous products
All products are the same irrespective of who makes them.
Price taker
A firm that has to accept the price ruling in the market. As there are large number of buyers and sellers.
Perfect competition
Large number of buyers and sellers (price taker)
Perfect market exists as perfect information
Able to sell and buy as much as they wish at ruling market price
Homogenous products
No barriers to entry or exit
Readily available information
Factors of production perfectly mobile
Oligopoly
A few mutually interdependent firms, each needing to take account of its rivals’s reactions when deciding its own market strategy and imperfect competition among the FEW.
Monopoly
Price maker
One firm producing 100% of market output.
Total revenue
What the firm receives for the sale of its product.
price x quantity (output)
Average revenue
Total revenue ÷ number sold (quantity)
Marginal revenue
The addition to total revenue from the production of one extra unit.
Distinguish between marginal revenue and marginal returns.
Marginal revenue is the amount by which total sales revenue increases when an extra unit of output is sold. Marginal returns (marginal product) is the addition to total output when an extra unit of output is produced.
Allocative efficiency
The optimum allocation of scarce resources that best accords with the consimers’ pattern of demand.
Marginal cost
The cost of the extra unit of output.
Total profit
= total revenue - total costs
Profit maximasation
Occur both in monopoly and perfect competition, when a firm chooses a level of output where marginal revenue equals marginals costs.
MR = MC
Revenue maximisation
Occurs at the level of output at which total sales revenue is maximised, occurs in monopoly but not in perfect competition. Because a perfectly competitive firm can always increase sales revenue by selling an extra unit of output.
