Chp. 14

Chapter 14 brings up competitive market again which are markets with many buyers and sellers trading identical products so that each buyer and seller is a price taker firms can freely enter or exit the market. Terms also discussed again are average revenue: total revenue / quantity sold (= the price of the good), marginal revenue: the change in total revenue from an addition unit sold , firms want marginal revenue to exceed marginal cost, and therefore it would increase the quantity produced to raise profit. The price of a firm's output is the same regardless of the quantity that the firm decides to produce  and trends are: if marginal revenue is less than marginal cost the firm can increase profit by reducing production, if the marginal revenue is greater than marginal cost, the firm should increase its output, if the marginal cost is greater than the marginal revenue the firm should decrease its output at the profit maximization level of output, marginal revenue and marginal cost are exactly equal shutdown is short-run decision not to produce anything during a specific period of time because of current market conditions and exit is long run decision to leave the market. firm that shuts down has to pay fixed costs, but exit does not have to pay for anything. shutdown if TR