revenue, costs and profits Flashcards
revenue, costs, economies and diseconomies of scale, profits and losses
how does price act in perfect competition and imperfect competition?
in perfect, firms are usually price takers so price remains constant per unit
in imperfect, firms are price makers so price can and does change, the price typically decreases as the quantity increases due to diminishing marginal revenue
how do MR and AR act in perfect competition?
they are usually constant and equal
how do MR and AR act in imperfect competition?
since prices decrease as quantity rises, cost of per quantity is decreasing, so MR decreases at almost double the rate of AR.
why is TR maximized when MR=0
when the revenue gained from an extra unit of production becomes 0 or turns into a loss, TR will follow. thus, the highest point of TR is when MR=0 as after that output leads to loss or decreasing rate of profit
elasticity in perfectly competitive market
The demand curve for a firm’s product is perfectly elastic, as consumers can purchase the same good from other firms at the market price.
insert AR = MR=D curve
