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Chapter 14 Lecture
Course: ECON 140, Fall 2011School: Wilfrid Laurier
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in 14 Firms Competitive Markets PRINCIPLES OF MICROECONOMICS FOURTH CANADIAN EDITION N. G R E G O R Y M A N K I W R O N A L D D. K N E E B O N E K E N N E T H J. M c K ENZIE NICHOLAS ROWE 2008 Nelson Education Ltd. In this chapter, look for the answers to these questions: What is a perfectly competitive market? What is marginal revenue? How is it related to total and average revenue? How does a...
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in 14
Firms Competitive Markets
PRINCIPLES OF
MICROECONOMICS
FOURTH CANADIAN EDITION
N. G R E G O R Y M A N K I W R O N A L D D. K N E E B O N E K E N N E T H J. M c K ENZIE NICHOLAS ROWE
2008 Nelson Education Ltd.
In this chapter, look for the answers to these questions:
What is a perfectly competitive market? What is marginal revenue? How is it related to total and
average revenue?
How does a competitive firm determine the quantity that
maximizes profits?
When might a competitive firm shut down in the short
run? Exit the market in the long run?
What does the market supply curve look like in the short
run? In the long run?
2008 Nelson Education Ltd.
2
Introduction:AScenario
Three years after graduating, you run your own
business.
You have to decide how much to produce, what price to
charge, how many workers to hire, etc.
What factors should affect these decisions?
Your costs (studied in preceding chapter) How much competition you face
We begin by studying the of behavior firms in perfectly
competitive markets.
2008 Nelson Education Ltd.
3
CharacteristicsofPerfectCompetition
1. Many buyers and many sellers 2. The goods offered for sale are largely the same. 3. Firms can freely enter or exit the market.
Because of 1 & 2, each buyer and seller is a price
taker takes the price as given.
2008 Nelson Education Ltd.
4
TheRevenueofaCompetitiveFirm
Total revenue (TR) Average revenue (AR) Marginal Revenue (MR):
The change in TR from selling one more unit. MR = TR = P x Q AR = TR Q TR Q =P
2008 Nelson Education Ltd.
5
ACTIVELEARNING1:
Exercise
Q 0 1 2 3 4 5
Fill in the empty spaces of the table. P $10 $10 $10 $10 $10 $10 $40 $50
6
TR
AR n.a. $10
MR
$10
MR=PforaCompetitiveFirm
A competitive firm can keep increasing its output without
affecting the market price.
So, each one-unit increase in Q causes revenue to rise
by P, i.e., MR = P.
MR = P is only true for firms in competitive markets.
2008 Nelson Education Ltd.
7
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