Professional Documents
Culture Documents
CH 08
CH 08
CH 08
● Perfect competition
♦ Many small firms and customers
♦ Homogeneous product
♦ Free entry and exit
♦ Well-informed producers and consumers
● Perfect competition
♦ Firm is a price taker.
♦ Price is set in the market.
♦ Firm is too small to affect the market.
A B C E Industry
$3 $3 demand
in Chicago
curve
Firm’s demand
curve
S
D
0 1 2 3 4 0 100 200 300 400
Truckloads of Corn Total Sales in Chicago
Sold by Farmer Jasmine in Thousands of Truckloads
per Year per Year
(a) (b)
MC AC
B
$3.00
D = MR = AR
2.25
A
1.50
0 50,000
MC AC
Revenue and Cost
per Bushel
A
$2.25
1.50
B D = MR = P
0 30,000
MC
AC AVC
P3 P3
A
B
Price
P2 P2
P1 P1
0
Quantity Supplied
s S
45 50 45 50
Quantity Supplied in Quantity Supplied in
Thousands of Bushels Millions of Bushels
(a) (b)
D
Price per Bushel
$3.75
E
3.00
C A
2.25
D
S
0 45 50 72
Quantity of Corn in
Millions of Bushels
E F
$3.00
A
2.25
S1 D
S0
50 72 80
Quantity of Corn in
Millions of Bushels
Firm Industry
MC (1,000 firms)
AC S0
Price per Bushel
40 45 50 50 72
Quantity of Corn in Quantity of Corn in
Thousands of Bushels Millions of Bushels
(a) (b)
D
Price per Bushel
40 83
Quantity of Corn in Quantity of Corn in
Thousands of Bushels Millions of Bushels
(a) (b)
B LRAC
$2.62
S
1.50 A
0 70
Output in
Millions of Bushels of Corn
X
B
E S
A
T
D
X
0 Qb Qe Qa
Output