Micro Econ

Why don't firms maximize revenue rather than profit?

At the point where revenue is maximized, the difference between total revenue and total cost may not be maximized

Perfectly Competitive Market

1. Many buyers and sellers. Each Individual buyer and seller is small relative to the entire market and as a result, cannot affect the market price 2.All firms sell identical products. There can be no verifiable difference between the goods and services sold under perfect competition 3. There are no barriers to entry into the market

Price Taker

A buyer or seller that is unable to affect the market price A buyer or seller that takes the market price given, a buyer or seller unable to affect the market price

Why are the actions of any single consumer or any single firm have no effect on the market price?

Because consumers and firms are price takers. Consumers and firms have to accept the market price if they want to buy and sell in a perfectly competitive market because they are small relative to the market and because the firms sell identical products

When does marginal revenue equal average revenue?

In a perfectly competitive market

Perfectly competitive firms should produce quantity where?

It should produce the quantity of output where the difference between total revenue and total cost is as large as possible.

What are the three conditions for a market to be perfectly competitive?

Many buyers and sellers, with all firms selling identical products, and no barriers to new firms entering the market.

Prices in a perfectly competitive markets are determined by?

The interaction of demand and supply.

When maximizing profits, Marginal Revenue=Marginal cost is equivalent to P=Marginal cost because?

The marginal revenue curve for a perfectly competitive firm is the same as its demand curve.

Why is marginal revenue is always equal to price for firms in perfectly competitive markets because?

Their demand curves are horizontal lines at the market price since price is equal to marginal revenue MR=MC=P

Consumers are usually price takers when they buy the most goods and services because?

Their individual purchases are small relative to their market while because their individual output is large relative to the market

Profit=Marginal Revenue=Average Revenue because?

firms can sell as much outputs as much output as they want at market price