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Lecture - 13 - Chapter 14 - Firms in Competitive Markets
Lecture - 13 - Chapter 14 - Firms in Competitive Markets
Markets
Chapter 14
The Four Types of Market Structure
Number of Firms?
Many
firms
One Type of Products?
firm Few
firms Differentiated Identical
products products
TR = (P X Q)
Revenue of a Competitive Firm
MR =TR/ Q
Revenue of a Competitive Firm
Price Quantity Total Revenue Total Cost Profit Marginal Revenue Marginal Cost
(P) (Q) (TR=PxQ) (TC) (TR-TC) (MR=T R / Q ) MC= T C / Q
0 $0.00 $3.00 -$3.00
$6.00 1 $6.00 $5.00 $1.00 $6.00 $2.00
$6.00 2 $12.00 $8.00 $4.00 $6.00 $3.00
$6.00 3 $18.00 $12.00 $6.00 $6.00 $4.00
$6.00 4 $24.00 $17.00 $7.00 $6.00 $5.00
$6.00 5 $30.00 $23.00 $7.00 $6.00 $6.00
$6.00 6 $36.00 $30.00 $6.00 $6.00 $7.00
$6.00 7 $42.00 $38.00 $4.00 $6.00 $8.00
$6.00 8 $48.00 $47.00 $1.00 $6.00 $9.00
Profit Maximization for the
Competitive Firm...
Costs The firm maximizes
and profit by producing
Revenue the quantity at
which marginal cost MC
equals marginal
revenue.
MC2
ATC
P=MR1 P = AR = MR
AVC
MC1
0 Q1 QMAX Q2 Quantity
Profit Maximization for the
Competitive Firm
When
Profit is maximized or
Loss is minimized.
The Marginal-Cost Curve and the
Firm’s Supply Decision...
Costs This section of the
and firm’s MC curve is
Revenue also the firm’s
supply curve. MC
P2
P1 ATC
AVC
0 Q1 Q2 Quantity
The Firm’s Short-Run Decision
to Shut Down
If P < AVC,
shut down.
0 Quantity
The Firm’s Short-Run Decision
to Shut Down
ATC
AVC
Firm exits
if P < ATC
0 Quantity
The Competitive Firm’s Long-
Run Supply Curve
ATC
AVC
0 Quantity
The Firm’s Short-Run and
Long-Run Supply Curves
MC ATC
Profit
P P = AR = MR
ATC
0 Q Quantity
Profit-maximizing quantity
Measuring Profit in the Graph for
the Competitive Firm...
Price b. A Firm with Losses
MC ATC
ATC
P P = AR = MR
Loss
0 Q Quantity
Loss-minimizing quantity
Summary
MC1
0 Q1 QMAX Q2 Quantity
The Marginal-Cost Curve and the
Firm’s Supply Decision...
Costs This section of the
and firm’s MC curve is
Revenue also the firm’s
supply curve. MC
P2
P1 ATC
AVC
0 Q1 Q2 Quantity
The Firm’s Short-Run Decision to
Shut Down...
Firm’s short-run
Costs supply curve.
MC
If P > ATC,
keep producing
at a profit.
ATC
If P > AVC,
keep producing AVC
in the short run.
If P < AVC,
shut down.
0 Quantity
The Competitive Firm’s Long-
Run Supply Curve...
Costs
MC = Long-run S
Firm enters
if P > ATC
ATC
AVC
Firm exits
if P < ATC
0 Quantity
The Competitive Firm’s Long-
Run Supply Curve...
Costs
Firm’s long-run MC
supply curve
ATC
AVC
0 Quantity
Measuring Profit in the Graph for
the Competitive Firm...
Price a. A Firm with Profits
MC ATC
Profit
P P = AR = MR
ATC
0 Q Quantity
Profit-maximizing quantity
Measuring Profit in the Graph for
the Competitive Firm...
Price b. A Firm with Losses
MC ATC
ATC
P P = AR = MR
Loss
0 Q Quantity
Loss-minimizing quantity
The Short Run: Market Supply
with a Fixed Number of Firms...
(a) Individual Firm Supply (b) Market Supply
Price Price
MC Supply
$2.00 $2.00
1.00 1.00
Price Price
MC
ATC
P=
minimum Supply
ATC
0 Quantity 0 Quantity
(firm) (market)
Increase in Demand in the Short
Run...
(a) Initial Condition
Firm Market
Price Price
ATC
MC S1
A
P1 P P1 Long-run
supply
D1
0 Quantity 0 Q1 Quantity
(firm) (market)