QUIZ 2- perfect markets Flashcards
define competitive market
a market with many buyers and sellers trading IDENTICAL PRODUCTS so that each buyer and seller is a PRICE TAKER.
3 characteristics of a market
1)there r many buyers & sellers in d market
2) the goods offered by the various sellers r largely d same
3) firms can freely enter and exit d market
4) price takers
the actions of any single buyer or seller in the market have a _____ impact on the market price
negligible (because they r price takers and can not influence the market price)
Why is average revenue and marginal cost the same? (3)
Because a competitive firm is a price taker, its revenue is equal to the amount of output it produces.
It produces the quantity of goods where the price it receives per unit equals the cost of making one more unit.
Sellers r in the market to make a profit but when price is set; the revenue is profitable to a certain degree.
profit maximizing quantity by comparing the ___________ & _________ from each unit produced
marginal revenue & marginal cost
marginal revenue > marginal cost
increase production will increase profit
BECAUSE you have enough money to cover the cost of making that additional unit.
(contributes more profit to the business.)
marginal revenue < marginal cost
decrease production
BECAUSE you no longer have enough money to cover the cost of making that additional unit. (making a loss)
fixed costs
variable costs
costs that do not change (rent, mortgage, utility bills)
costs that change (salary, factors of production.)
amount produced does ____ affect the price; price affects the amount _____
not
produced
MC = MR
Highest profit
When it comes to a competitive market, the firm may always choose the QUANTITY that will give the HIGHEST PROFIT because
the firm is a PRICE TAKER. Because it is a price taker average revenue & marginal revenue will always equal price
rules of firms (2)
- reduce costs (only by cutting costs you can make a profit)
- profit
