Content:
- Profit maximising rule: produce where Marginal Revenue = Marginal Cost (MR = MC)
- Marginal cost (MC) = change in total cost ÷ change in quantity (divide per unit if
required)
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- All buyers and sellers are price takers — no individual can influence the market price
- π = (P* − ATC) × Q* (Profit Equation)
- Productive efficiency — producing at minimum ATC in the long run → monopolists
are NOT productively efficient, perfect competition are both
- Allocative efficiency — selling at P = MC so all mutually beneficial trades occur →
monopolists are NOT allocatively efficient, perfect competition are both
- Oligopoly - A small number of firms, usually due to barriers to entry. Product
differentiation may or may not existThe actions of one firm directly affect the profits of
rivals via the price effect.
- The value of the reservation option includes: income while unemployed, government
benefits, time required to find a better job, and utility factors such as how the worker
values free time and anxiety about unemployment
