Th3.3: Price Elasticity Flashcards
Refer to PP
Look at Graph 27. Some firms experience a perfectly elastic demand curve…
these are firms in perfect competition - these firms have no price setting power
Refer to PP
Look at Graph 27. Why does MR = AR = D in this case?
the price received by the firm for the good is constant
What is the demand curve like - don’t look at graph!
horizontal
What is the TR curve like and why?
upwards sloping as prices are constant and so the more goods sold, the higher the revenue
Draw Graph 27 three times!
please
Refer to PP
Look at Graph 28. For most goods however…
the price decreases as output increases and there is a downward sloping demand curve and therefore a downward sloping AR curve
Refer to PP
Look at Graph 28. What is the demand curve for the firm the same as and why?
the same as the firm’s AR revenue curve, as it indicates the price that consumers are willing to pay for each quantity sold
Firms with a downwards sloping demand curve are firms that…
that are in imperfect competition and so have some price setting power
Draw Graph 28 three times please!
YES YES WELL DONE
