![]() ![]() Variable costs ( VC ) are expenses which increase with the quantity of output produced ( Q ). Examples of fixed costs include rent and annual salaries. ![]() Review of the costs incurred when producing and selling productsįixed costs ( FC ) are expenses to that do not vary with the quantity of output produced ( Q ). ![]() Marginal revenue ( MR ) can be defined as the additional revenue a firm receives for selling one additional unit of output, and so in perfect competition, it equals the price of the product and can represented by a horizontal line ( MR = P ) as in the graph below. The price per unit is completely controlled by the market forces of supply and demand, and each firm in the market must sell their product at this predetermined market price. In a perfectly competitive market, there are many economic participants but none have the power to set the market price for a particular product. Costs of Production in a Perfectly Competitive Market ![]()
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