perfect_competition_primer_handout

Principles of Microeconomics (7th Edition) (Case/Fair Economics 7e Series)

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Economics 2302 Principles of Microeconomics Professor McFarlin University of Texas at Dallas Handout on Perfect Competition Data: TFC = $15 and P = $5 P Q TR TC Profit MR MC AC $5 0 $0 $15 $ -15 - - - 5 1 5 20 -15 $5 $5 $20 5 2 10 23 -13 5 3 11.5 5 3 15 24 -9 5 1 8.0 5 4 20 24.4 -4.4 5 1.4 6.1 5 5 25 25 0 5 0.6 5.0 5 6 30 27 3 5 2 4.5 5 7 35 30 5 5 3 4.3 5 8 40 35 5 5 5 4.4 5 9 45 41 4 5 6 4.6 5 10 50 50 0 5 9 5.0 5 11 55 61 -6 5 11 5.5 A. Brute force method: a. Compute TR and TC for each level of Q, then pick Q where profits are
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Unformatted text preview: maximized b. Answer: i. Q = 7 or Q = 8 ii. Get Profits = 5 either way B. Use “rule”: set Q where MR = MC, or P = MC a. Q = 8, where MR = MC = $5 C. Why not pick MR = MC = $5 at Q =1? a. Moving to Q = 2 will raise profits b. Use upward-sloping part of MC curve D. Shut-down condition in short-run: a. If TR ≥ TVC, then set Q, where MR = MC b. If TR < TVC, then set Q = 0 i. Shut down if can’t cover TVC ii. Losses = fixed costs $ Q MC AC AVC 1 8 5 1...
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