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Principals of Economics Unit

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#793634.34 Principals of Economics Unit 3
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#793634.34 Principals of Economics Unit 3

The Perfectly competitive market is a market structure in which the competition level is very high (Mankiw, 2007). In this market structure, the knowledge is freely available to all buyers and sellers. The availability knowledge enables the consumers and producers to make rational decisions to maximize their profits. Market price is the particular price that buyers and sellers agree to use in the market at a given time. I formal markets, there are two types of prices. These are the selling price and the buying price. The price of the goods in the market determines the market structures (Economics Online, 2015). The increase market products depend on demand and supply. In a perfectly competitive market firm, the price of goods determines the profit. The average revenue is the revenue a firm generates by selling one unit of output. The market structure determines the relationship between the quantity of output and average revenue. In a perfectly competitive market, the average revenue equals both marginal revenue and the price. Both marginal revenue and the prices are constant. A business experiences marginal revenue when it sells one or more extra units of its output. Marginal revenue plays a crucial role in profit maximization decision making (Mankiw, 2007). Therefore, a perfectly competitive market increases its profit by equating marginal revenue. The marginal revenue and the total output rely on market structure. In a perfectly competitive market, the price and average revenue equals marginal revenue. Lastly, he perfectly competitive market structures can be to a greater extent be defined by the market price, average revenue and marginal revenue since three factors has a relationship to…...

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