Bài giảng MicroEconomics - Chapter 8 Pure Competition in the Short Run

Pure Competition in the Short Run08 Copyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.McGraw-Hill/IrwinFour Market ModelsPure competitionPure monopolyMonopolistic competitionOligopolyLO1Market Structure ContinuumPure CompetitionMonopolisticCompetitionOligopolyPureMonopoly8-2Four Market ModelsLO1Characteristics of the Four Basic Market ModelsCharacteristicPure CompetitionMonopolistic CompetitionOligopolyMonopolyNumber of firmsA very large numberManyFewOneType of productStandardizedDifferentiatedStandardized or differentiatedUnique; no close subs.Control over priceNoneSome, but within rather narrow limitsLimited by mutual inter-dependence; considerable with collusionConsiderableConditions of entryVery easy, no obstaclesRelatively easySignificant obstaclesBlockedNonprice CompetitionNoneConsiderable emphasis on advertising, brand names, trademarksTypically a great deal, particularly with product differentiationMostly public relation advertisingExamplesAgricultureRetail trade, dresses, shoesSteel, auto, farm implementsLocal utilities8-3Pure Competition: CharacteristicsVery large numbers of sellersStandardized product“Price takers”Easy entry and exitPerfectly elastic demandFirm produces as much or little as they want at the priceDemand graphs as horizontal lineLO28-4Average, Total, and Marginal RevenueAverage RevenueRevenue per unitAR = TR/Q = PTotal Revenue TR = P X QMarginal Revenue Extra revenue from 1 more unitMR = ΔTR/ΔQLO38-5Average, Total, and Marginal RevenueLO3Firm’sDemandSchedule(AverageRevenue)Firm’sRevenueDataD = MR = ARTRPQDTRMR$131131131131131131131131131131131012345678910$0131262393524655786917104811791310$131131131131131131131131131131]]]]]]]]]]8-6Profit Maximization: TR–TC ApproachThree questions:Should the firm produce?If so, what amount?What economic profit (loss) will be realized?LO38-7Profit Maximization: TR–TC ApproachLO3The Profit-Maximizing Output for a Purely Competitive Firm: Total Revenue – Total Cost Approach (Price = $131)(1)Total Product(Output) (Q)(2)Total Fixed Cost (TFC)(3)Total Variable Costs (TVC)(4)Total Cost(TC)(5)Total Revenue (TR)(6)Profit (+)or Loss (-)0$100$0$100$0$-100110090190131-592100170270262-83100240340393+534100300400524+1245100370470655+1856100450550786+2367100540640917+27781006507501048+29891007808801179+2991010093010301310+2808-81023456789101112131410234567891011121314$180017001600150014001300120011001000900800700600500400300200100$500400300200100Total Revenue and Total CostTotal EconomicProfitQuantity Demanded (Sold)Quantity Demanded (Sold)Profit Maximization: TR–TC ApproachLO3Total Revenue, (TR)Break-Even Point(Normal Profit)Break-Even Point(Normal Profit)MaximumEconomicProfit$299Total EconomicProfit$299P=$131Total Cost,(TC)8-9Profit Maximization: MR-MC ApproachLO3The Profit-Maximizing Output for a Purely Competitive Firm: Marginal Revenue – Marginal Cost Approach (Price = $131)(1)TotalProduct(Output)(2)Average Fixed Cost (AFC)(3)Average Variable Costs (AVC)(4)Average Total Cost(ATC)(5)Marginal Cost(MC)(5)Price = Marginal Revenue(MR)(6)Total Economic Profit (+)or Loss (-)0$-1001$100.00$90.00$190$90$131-59250.0085.0013580131-8333.3380.00113.3370131+53425.0075.00100.0060131+124520.0074.0094.0070131+185616.6775.0091.6780131+236714.2977.1491.4390131+277812.5081.2593.75110131+298911.1186.6797.78130131+2991010.0093.00103.00150131+2808-10Profit Maximization: MR-MC ApproachLO3Cost and Revenue$20015010050012345678910OutputEconomic ProfitMR = PMCMR = MCAVCATCP=$131A=$97.788-11Loss-Minimizing CaseLoss minimizationStill produce because P > minAVCLosses at a minimum where MR=MCLO38-12Loss-Minimizing CaseLO3LossMR = PMCAVCATCP=$81A=$91.67V = $758-13Shutdown CaseLO3MR = PMCAVCATCP=$71V = $74Short-Run Shut Down PointP < Minimum AVC$71 < $748-14Three Production QuestionsLO3Output Determination in Pure Competition in the Short RunQuestionAnswerShould this firm produce?Yes, if price is equal to, or greater than, minimum average variable cost. This means that the firm is profitable or that its losses are less than its fixed cost.What quantity should this firm produce?Produce where MR (=P) = MC; there, profit is maximized (TR exceeds TC by a maximum amount) or loss is minimized.Will production result in economic profit?Yes, if price exceeds average total cost (TR will exceed TC). No, if average total cost exceeds price (TC will exceed TR).8-15Firm and Industry: EquilibriumLO4Firm and Market Supply and the Market Demand(1)QuantitySupplied, SingleFirm(2)TotalQuantitySupplied,1000 Firms(3)ProductPrice(4)TotalQuantityDemanded1010,000$1514,00099,0001316,00088,0001118,00077,000919,00066,0008111,000007113,000006116,0008-16Firm and Industry: EquilibriumLO4EconomicProfitdATCAVCs = MC$111$111DS = ∑ MC’s880008-17