Prelims High-Yield Explanations & Traps

• profit with the Greek letter
• that at
• also that the AVC at q
• conclusion
• also that the LRAC
• conclusion
• simple or uncontroversial
• that each individual buyer and seller is very small compared to the size of the market
• that no individual buyer or seller can influence the market by their size
• the market price of the good (p) multiplied by the firm’s output (q)
• that the TR curve is an upward rising straight line
• total revenue per unit of output
• that a firm can sell as many units of the good as it wants to sell at price p
• the increase in total revenue for a unit increase in the firm’s output
• normal profit
• that the firm’s supply curve shifts to the left: at any given market price, the firm now supplies fewer units of output
• that S m (p) is as follows S m (p) = 0:10 – 10:1015 ( – 10) ( – 15) 2 – 25 :15 p ppand p pppp <   ≥<   +=≥  4
• follows Price elasticity of supply, e S = Percentage change in quantity supplied Percentage change in price 100 100 Q QP Q P QP P ∆ × ∆ ==× ∆ ∆ × Where Q∆ is the change in quantity of the good supplied to the market as market price changes by P∆

Essential Definitions & Formulas

The focus of this chapter

different.

Our answer to this question is by no

simple or uncontroversial.

The structure of this chapter

as follows.

Information

perfect.

The existence of a large number of buyers and sellers means that each individual buyer and seller

very small compared to the size of the market.

This

that no individual buyer or seller can influence the market by their size.

Homogenous products further mean that the product of each firm

identical.

Free entry and exit mean that it

easy for firms to enter the market, as well as to leave it.

This condition

essential 2021–22 54 Introductory Microeconomics for the large numbers of firms to exist.

Notice that when no box

sold, TR is equal to zero; if one box of candles is sold, TR is equal to 1×Rs 10= Rs 10; if two boxes of candles are produced, TR is equal to 2 × Rs 10 = Rs 20; and so on.

This means that the TR curve

an upward rising straight line.

When the output

one unit (horizontal distance Oq 1 in Figure 4.

Since the market price

fixed at p, we obtain a horizontal straight line that cuts the y-axis at a height equal to p.

This horizontal straight line

called the price line.

It

also the firm’s AR curve under perfect competition The price line also depicts the demand curve facing a firm.

Observe that the demand curve

perfectly elastic.

This

that a firm can sell as many units of the good as it wants to sell at price p.

The vertical height of the price line

equal to the market price, p.

Introductory Microeconomics Is it a coincidence that this

the same as the price? Actually it is not.

TR and TC

the firm’s earnings net of costs.

Related PYQs

No PYQs linked yet.