Session 5: Perfect competition and price takers Flashcards
What is the formula for total revenue?
TR = P x Q
Marginal revenue (MR) is…
Change in total revenue from selling an additional unit
What is the formula for marginal revenue?
ΔTR/ ΔQ
In perfect competition, average revenue is the same as…
Price, Demand
What is the formula for average revenue?
TR/Q = PQ/Q = P
On a perfectly straight demand line, which part is elastic?
Above/to left of mid-point
On a perfectly straight demand line, which part is inelastic?
Below/to right of mid-point
When demand is elastic, a decrease in price…
Increases total revenue
When demand is inelastic, a decrease in price…
Decreases total revenue
Total revenue is maximized when…
Elasticity is unity
What is the formula for profit?
π = TR - TC = Q(P - AC)
Profit is maximized when…
Marginal revenue = marginal cost
What are the major traits of perfect competition?
Price-taking
Product homogeneity
Free entry and exit
When plotting supply curves, MC curves intersect…
Low point of AC curves
