Revenue curves- A and MR in perfect and imperfect competition Flashcards
What are the 4 conditions apply to perfect competition?
- Homogenous goods
- perfect competition
- many buyers and sellers
- No barriers to entry/exit
In perfect competition, if the firm was to raise the price of a product what will be the impact?
If one firm was to bring the prices higher of a product then other firm will not follow as consumers will switch their consumption to cheaper products.
In perfect competition, if the other firms were to reduce the price of a product how will this impact the firm?
If other firms was to reduce the prices then other firms will follow but it does not make sense to reduce price or raise them since in the end the firm will not make a profit.
For instance, if the firm is selling potatoes for the price of one pound, how does this impact workers?
In perfect competition, it is assumed that the price of the potatoes will be the same which is £1 in this scenario
-However, consumers depending on how much they need to buy will buy 1,2,3,4 and 5
-Total revenue is calculated by multiplying price with quantity
-Average revenue is calculated by is where total revenue is divided by quantity
-marginal revenue is calculated as the extra revenue generated from selling one extra unit
Therefore the curve will be a horizontal line where AR=MR=D so it will have a price elastic demand
How will the conditions be for imperfect competition?
All the conditions that were impacted by perfect competition will be dropped.
What will the assumption of imperfect competition look like?
It will look like the AD curve will point downwards because now the prices will vary, if you actually look at the prices it makes sense that the quantity solved this means when the price is higher consumers will purchase less than when prices are law this applies to the law of demand.
