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CH 9: Price and Output Under Perfect Competition
CH 9: Price and Output Under Perfect Competition
Perfect Competition
Different Market Structures
Average cost
385
PRICE= 300 Demand = Price = MR
260 Profit = TR - TC
= PQ - AC(Q)
= (P - AC)Q
1 2 3 4 5 6 7 8 = (300-385)40
0
Output (tens of units per day) = -3,400
BUT IF FIRMS DO NOTPRODUCE THEN LOSS= FIXED COSTS
4
(Profit = TR – TVC – TFC = 0 – 0 – 4800 = – 4800; TFC = (ATC-AVC )* Q
Shutdown Point: When price falls below
minimum possible AVC.