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Study notes

Price Takers and Price Makers

  • Levels: A Level, IB
  • Exam boards: AQA, Edexcel, OCR, IB, Eduqas, WJEC

This is a short revision note on price takers and price makers and the consequences for average and marginal revenue in each situation.

Price takers

  • Price takers accept the ruling market price and sell each unit at the same price. AR=MR. We find price takers in perfectly competitive markets.

Price makers

  • Price makers are found in imperfectly competitive markets such as Monopoly & Oligopoly
  • Price makers have some pricing power and will face a downward sloping AR curve

Average and marginal revenue curves for price takers and price makers

Average and marginal revenue curves for price takers and price makers

Price-taking and the average revenue curve in perfect competition

The average revenue curve is the price that the price-taking perfectly competitive firm charges. As the firm is tiny compared to the overall output of the market, the firm cannot influence the market price in any way. It can choose to sell as much as it likes at the going market price but finds there is no market for its homogenous output at a higher price.

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