Profit maximization
- Average Revenue= the total revenue divided by the amount sold= price of the good/service.
- Marginal Revenue= the change in total revenue if an extra unit is sold. (p.290)
- Sunk cost= a cost which has already been incurred and cannot therefore be recovered. (p.294)
DIFFERENCE BETWEEN LOOKING AT FIRM LEVELS:
- Firms are price takers and therefore have no influence on market prices. This means there is a flat demand curve.
- If the price of a certain products were to decrease, then the firm would face a demand from the consumers. Unfortunately, this demand will not be met as factories can only produce a limited amount.
- If the price of these products were to increase (charging above the market price), then no consumer would buy products from that firm. Buyers would go to a firm which is selling the identical product at a reasonable and affordable price.
- Will we then be able to see a downward-sloping demand curve and an upward-sloping supply curve.??