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Economics Essay

277 words - 2 pages

You are given the following functions in a fully competitive market:
Market demand function: Qd = 20 – 3P
Market supply function: Qs = 4 + P
Where P is price
A)    In which price should a fully competitive firm sell its product?
B)    Compute the average revenue and the marginal revenue of a fully competitive firm
C)    Illustrate in diagrams both the curves of the average and the marginal revenue.

1. Price should sell it products in a ...view middle of the document...

3

Price
8
7
6
5
4
3
2
1
0 5 10 15 20
Quantity of goods and services

Price
8
7
6
5
4
3
2
1
0 5 10 15 20
Quantity of goods and services

2.

$6 = MR = AR = P
$6 = MR = AR = P

$4 = MR = AR = P
$4 = MR = AR = P

The Average revenue and Marginal Revenue of a fully competitive firm.
Revenue
8
7
6
5
4
3
2
1
0 5 10 15 20
Quantity of goods and services
Revenue
8
7
6
5
4
3
2
1
0 5 10 15 20
Quantity of goods and services

3

MR = AR
MR = AR

This is an illustration of the equality between average revenue and marginal revenue which occurs for a firm selling an output in a perfectly competitive market. This is illustrated by the exhibit to the right.

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