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A market can be defined as a group of firms willing and able to sell a similar product or service to the same potential buyers.
Major features that determine PURE COMPETITON market structure: Number of sellers Product differentiation Entry and exit conditions
PC demand curve is perfectly elastic. Example of Perfectly Competitive Markets: Foreign exchange dealing. Agricultural markets.
3000
2500
2000
1500
TC TR
Breakeven point
1000
500
0 0 2 4 6 8 10 12 14 16 18 20
Maximum profit is achieve on producing 18 units with a profit of P598.00 Therefore, the firm would achieve positive profit so long as revenues exceed cost, it will incur losses if cost exceed revenues and if revenues just equal costs, the firm is just breakeven.
200 180
MR=MC
160 140 120 100 80 60 40 20 0 0 2 4 6 8 10 12 14 16 18 20
PROFIT
COST
MR
MC
AC
The supplier will continue to produce as long as marginal cost is less than marginal revenue. The supplier will cut back on production if marginal cost is greater than marginal revenue.
Loss-Minimizing Case
In Short-run Loss, the average cost of production is higher than the market price. The firm incurs a loss when the AC curve is above the MR curve.
Breakeven Price The firm is just breaking even if the market price is just equal to the lowest point of short-run average cost (SAC).