Chapter 14 deals primarily with a perfectly competitive market. So far in microeconomics, we have assumed that all markets are perfectly competitive. For the sake of the supply and demand models we have been dealing with, the markets have been perfectly competitive. Chapter 14 describes how a perfectly competitive market has many buyers and sellers, equivalent products, and no barriers to entry or exit. As we learned of all firms last chapter, a perfectly competitive firm's goal is to maximize profit.
What we learn in this chapter is how a firm reaches maximum profit. A firm maximizes profit when its marginal cost of producing a good is equal to its marginal revenue. When this happens, profit is maximized because an additional output will not increase the marginal benefit. The firm's price is set at the point where marginal revenue is equal to marginal cost.
No comments:
Post a Comment