a producer whose actions have no effect on the market price of the good or service.

   a market in which all market participants are price –takers.

  an industry in which producers are price –takers.

1. Market share

2. Standardized product or Commodity

 a producer’s market share is the fraction of the total industry output accounted for by that producer’s output.

 a good is a standardized product, also known as a commodity, when consumers regard the products of different producers as the same good.

 an industry has free entry and exit when new producers can easily enter into an industry and existing producers can easily leave that industry.

Production and Profits- Using Marginal Analysis to Choose the Profit- Maximizing Quantity of Output

-Marginal Revenue

-Optimal Output Rule

-Formulas

-Price-taking Firm's optimal Output rule

-Marginal Revenue Curve

    is the change in total revenue generated by an additional unit of output.

 says that profit is maximized by producing the quantity of output at which the marginal revenue of the last unit produced is equal to its marginal cost.

o     TR=P x Q

o   Profit = TR – TC

o   Marginal Revenue = change in total revenue generated by one additional unit of output = change in TR/ change in quantity of output

§  MR = change TR/ change Q

   Says that a price taking firms profit is maximized by producing the quantity of output at which the market price is equal to the MC of the last unit produced.

shows how marginal revenue varies as output varies.  (Figure 13-2)

·         Profit = TR – TC

o   If the firm produces a quantity at which TR > TC the firm is profitable

o   If the firm produces a quantity at which TR= TC the firm breaks even

o   If the firms produces a quantity at which TR < TC the firm incurs a loss

·         Profit/Q = TR/Q – TC/Q

·         TR/Q is the average total revenue & TC/Q average total cost

o   If the firm produces a quantity at which P> ATC the firm profits

o   If P=ATC the firm breaks even

o   If P< ATC the firm incurs a loss

TR–TC = (TR/Q- TC/Q) x Q 

or

(P – ATC) x Q

 of a price –taking firm is the market price at which it earns a zero profit.

The Short –Run Production Decision (Figure 13-4)

-Shut Down Price

-Short Run Individual Supply Curve

 a firm will cease production in the short run if the market price falls below the shut –down price, which is equal to minimum average variable cost.

 shows how an individual producer’s profit-maximizing output quantity depends on the market price taking fixed cost as given.

shows the relationship between the price of a good and the total output of the industry as a whole.

when the quantity supplied equals the quantity demanded, given that sufficient time has elapsed for entry into and exit the industry to occur.

 shows how the quantity supplied responds to the price once producers have had time to enter or exit the industry.