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homogeneous products
price taking/ many buyers & sellers
no barriers to entry or exit
price taking/ many buyers & sellers
no barriers to entry or exit
answer
Perfect competition includes:
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total revenue - total cost
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Profit =
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marginal revenue = marginal cost
answer
To maximize profit, select q so that...
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market power
information or a strategy
no arbitrage
information or a strategy
no arbitrage
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Price discrimination involves:
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Find a way to charge customers with a higher willingness to pay a higher price than is charged to those with a lower willingness to pay.
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An explanation of price discrimination:
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(P1-C1)/(P1) = -1/E1
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Price discrimination formula:
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student discounts
discount coupons
age discounts
business vs leisure travel
discount coupons
age discounts
business vs leisure travel
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Examples of price discrimination:
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tying
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When you sell a base product but the product requires a variable to be purchased for it. The variable is usually replenished continuously and can be overcharged.
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maximizes profit
answer
Q is the quantity that...
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marginal revenue
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The additional revenue from producing and selling a little bit more.
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marginal cost
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The additional cost of producing and selling a little bit more (Change in Total Cost / Change in Quantity).
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total revenue
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All of the money that the firm makes through sales of goods and services (price x quantity sold).
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average revenue
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The average revenue per unit sold. It is equal to the total revenue divided by the quantity.
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average cost
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The ratio of total cost to the output rate. (tc/q)
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fixed costs
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Expenses that are independent of the firm's output rate.
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variable costs
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Expenses that vary with the firm's output rate.
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Fixed Cost + Variable Cost.
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Total cost =
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change in total cost / change in quantity
answer
MC =
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economic profit
answer
A firm that earns an _____ of zero is earning just as much as the owner(s) of the firm could have earned by pursuing their next best alternative.
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mr=mc
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To maximize profit, make sure...
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perfect competition
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A market structure characterized by a large number of potential sellers who offer virtually identical products for sale to a large number of potential buyers.
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price taking firms
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Take the price of the market.
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lerner index
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Formulates the relationship between price, marginal cost and the price elasticity of demand. It can be written as L = (P-C)/P = - 1/E, where L is the Lerner Index, P is the price, C is marginal cost, and E is the price elasticity of demand for the firm's product. The Lerner Index can be interpreted as a measure of the firm's market power.
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market power
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Exists if the firm faces a downwards sloping demand for its product.
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