Profit Maximisation Flashcards
What is perfect competition?
A market model where many small firms compete with identical products, and no firm can dominate the market or influence prices.
What is the definition of profit maximisation?
The way in which firms understand how much they can sell in a competitive market and how much profit they can make from those sales.
What is the formula for profit?
TT = TR - TC
TT = Total Profit, TR = Total Revenue, TC = Total Cost
What does Average Cost (AC) represent?
Cost per unit output calculated as AC = TC/Q
Q = Quantity of output produced
How is Marginal Cost (MC) calculated?
MC = change in TC/change in Q
TC = Total Cost, Q = Quantity of output produced
What characterizes the Average Revenue (AR) curve under perfect competition?
The AR curve is horizontal, indicating that firms receive the same amount for each unit sold.
What is the relationship between Average Revenue and price in perfect competition?
Average revenue equals price because firms cannot influence the market price.
What is the break-even point in terms of costs and revenues?
The break-even point occurs when AC = AR.
What is Marginal Revenue?
The change in total revenue when a firm increases its output by one additional unit.
True or False: Marginal Revenue is constant under perfect competition.
True.
What does Marginal Cost refer to?
The change in total cost from producing one extra unit.
