Module 7: Concepts and Overview


Module 7: Concepts and Overview

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NEAS
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Microeconomics, Module 7, "Competitive Industry, Short-Run" (Chapter 7)

(Overview and Concepts)

(See the attached PDF file.)


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In these notes you write "Since the demand curve is horizontal, marginal revenue = price." On page 181 (6th ed.) of Landsburg, he writes

"In general, for any competitive firm we have the equations:

Total Revenue = Price X Quantity

Marginal Revenue = Price"

*****************

In the short run, a firm's faces a horizontal demand curve. This is because in a competitive market, each firm is small compared to the total market. But if the demand curve for the firm were not horizontal, why would the equation Marginal Revenue = Price no longer be true? And if this equation were no longer true, then would it NOT be true that the Supply Curve looks the same as the Marginal Cost curve? It seems to me that the only necessary condition for the Supply Curve to look the same as the Marginal Cost curve is that the Demand Curves be nonintersecting and cover the plane.

[NEAS: If the market is not competitive, the demand curve facing the firms may not be horizontal, and revenue does not equal price. The chapter on monopoly discusses this in detail.]
Edited 7 Years Ago by NEAS
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NEAS - 1/24/2005 12:58:41 PM

Microeconomics, Module 7, "Competitive Industry, Short-Run" (Chapter 7)

(Overview and Concepts)

(See the attached PDF file.)


 

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