The value of the resources used to produce the last unit of output are just equal to the value of the output produced. They are using their existing scale efficiently and are using the most efficient scale. The traditional approach to analyzing market behavior A. Grouping firms according to market structure 1. Firms are grouped together based on certain market characteristics, including number and size of firms, resource mobility, and product differentiation among firms. Based on specific market characteristics, firms are categorized as perfect competitors, monopolists, monopolistic competitors, or oligopolists .
Perfect competitors are price takers, while the latter three are price searchers.
B. Mark-up pricing 1. Most firms do not set output and price by equating marginal revenue and marginal cost but instead choose some target level of output and then set price using some type of mark-up formula. The connection between the rule for profit maximization and mark-up pricing 1. The formula only applies at the profit-maximizing level of output. B. Price elasticity of demand revisited 1.