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(Pure Competition) - Coggle Diagram
Pure Competition
Produce Standardized product
No attempt to differentiate
Easy to enter and exit market
Nonprice competition is non
Price takers
Market price
Firm
Profit maximization or loss minimizing in the short run
Total revenue - Total cost approach
Answers to questions
Break-even point
Total revenue covers all cost, but there is no economic profit
Where two curves intersect
Should produce where TR exceeds TC
Maximize profit
Where vertical distance between TR and TC is the greatest
Profit is the most
Shutdown
-Profit >TFC
Minimizing loss
Produce where -Profit <TFC
Where vertical distance between - Profit and TFC is the smallest
Compare total revenue with total cost
TR-TC
Marginal revenue -marginal cost
Answers to questions
When producing is preferred to shutting down
Minimizing loss
2 more items...
Maximize profit
3 more items...
Produce last unit of output where MR exceeds MC
Shutdown
Every output level average variable cost exceeds price
Should not produce if Market price is less than minimum average variable cost
Compare Marginal revenue with marginal cost
MR-MC
Only variable a firm can control is OUTPUT
Profit = ( Price - Average cost ) X Quanity
Three questions
Should we produce?
If so, in what amount?
What economic profit( or loss) will we realize?
No control over price
Demand for a Purely competitive seller
Perfectly elastic demand
Market demand is not perfectly elastic
Marginal revenue curve coincides with the firms demand curve
Average revenue curve coincides with demand curve
Demand curves and revenue curves
D=MR=AR
TR curve is a straight line upsloping curve
TR= MR X Quantity
Price and average revenue is the same thing
Very Large number of sellers
Thousands