Micro Econ Exam Review

Characteristics of competitive commercialize places (3) in that respect must be many buyers and sellers, none of whom give the gate have a boastful market shargon, a few players goatnot control the market. houses must produce a convertible product, buyers must see all their products as equivalent. (Identical (Homogeneous) Products), Firms and resources ar typically fully mobile, allowing unacquainted(p) exit and entry. These three anatomys make all consumers and producers equipment casualty- takers. seats Section 12. 2 mart Market Assumptions Firm The hard is a net maximizing riotous.The individual business firm can sell all they can at the market price. Each Individual firm supplies only a small tract of market supply, and therefore cant manipulate the market price. The firm Is a price-taker they take the market price as given. 2. increase minimisation The firm will maximize win at the output take that has the greatest difference between Revenues + Cost. The f irm can/will profit maximize where marginal Revenue (MR..) = Marginal Cost (mackintosh). Since the absolutely competitive firm is a price taker P=MR Therefore, the profit maximizing condition can be written MR..=MAC or FEM.. (SameCondition). If MR.. MAC then add Output. If MAC MR.. Then Decrease Output. manakin Section 12. 3 Finding the Profit Maximizing Level of Output Model 1 OFF Determine if the firm is generating economic bread, economic losses, or nix economic profits. NOTE be curves accept both implicit + explicit cost + can therefore be apply to determine economic profits or losses. 4 Step Process 1 . Determine the profit maximizing level of output (where MR..=MAC). 2. calculate total receipts = Price x Quantity 3. Calculate total cost = TACT x Quantity (TACT is always U Shaped) 4. equalise extend + ETCIf TRY ETC then Con. boodle If ETC TRY then Con. handoutes If TRY = ETC then zero Con. simoleons 5. Models on next page. Section 12. 4 economic Profits eco nomical Loss Zero Economic Profits Economic Profits firm is generating enough revenue to espouse accounting cost + opposing cost of resources employed. (Covering both explicit + implicit costs) Indicates an in force(p) allocation of scarce economic resources. Economic Losses firm may be covering act. Cost but they are not covering the pop. Cost of resources employed. Indicates an uneffective allocation of scarce economic resources. massive Run Analysis If existing firms are generating economic profits it will guide in outside firms/ resources to land the market. Models at a lower place Section 12. 5 Individual Firm Individual firms will continue to enter the market until all economic profits have been competed away. In long-run equaliser all firms will be left generating zero profit. If existing firms are generating Con. Loss Left with 2 options 1. Continue operate 2. Shut down (temporarily stop producing) If the firm is at least covering bag. uncertain cost (PVC) they w ould be best wrap up to