DAY 1 PP Intro to Perfect Competition.ppt

DAY 1 PP Intro to Perfect Competition.ppt - Introduction to...

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Unformatted text preview: Introduction to Perfect Competition Market Structures • Depend on two major factors: # of firms (1, few or many) Nature of product (identical or different) • Answers determine type of market Identical or Differentiated? Identical or Differentiated? Identical or Differentiated? Identical or Differentiated? Identical or Differentiated? Market Structures Perfect Competition • Assume the following: Many firms are in the market Firms sell identical products No barriers to entry Q 0 P $8 TR $0 MR TVC $0 TC $4 MC --- 1 2 $8 $8 $8 $16 $8 $8 $6 $8 $10 $12 $6 $2 3 4 $8 $8 $24 $32 $8 ` $8 $12 $18 $16 $22 $4 $6 5 6 $8 $8 $40 $48 $8 $8 $26 $36 $30 $40 $8 $10 7 8 $8 $8 $56 $64 $8 $8 $48 $62 $52 $66 $12 $14 9 $8 $72 $8 $78 $82 $16 But is it profitable? • Accounting vs. Economic Profit? • Assume costs include implicit cost But is it profitable? • • • If TR > TC Firm is profitable If TR < TC Firm has a loss If TR = TC Firm “breaks even” What about profit per unit? • Substitute and we get … We find then that … • • • If P > ATC Firm is profitable If P < ATC Firm has a loss If P = ATC Firm has normal profit Daphne’s Apparel Shop • Use the optimal output rule to find the level of output that maximizes profit if the market price is $9 each. • Calculate her economic profit or loss. • Repeat assuming that the market price is $6 each. Q TFC TVC TC 0 $5 $0 $5 1 $5 $6 $11 2 $5 $11 $16 3 $5 $13 $18 4 $5 $18 $23 5 $5 $25 $30 6 $5 $34 $39 7 $5 $49 $54 8 $5 $68 $73 MC ...
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