Chap13 - Krugman and Wells Chapter 13 Steven J. Haider...

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Krugman Krugman and Wells and Wells Chapter 13 Chapter 13 Steven J. Haider EC201 Spring 2010
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EC201-13-p2 Overview Overview Chapter 9: discusses rational decision making (especially marginal analysis) Chapter 10: digs into the demand curve (a little) more Chapter 12: starts really digging into the supply curve by examining costs This chapter: moves from costs to perfect competition and the supply curve Defining perfect competition The firm’s production decision The industry supply curve Hold on—this may be toughest chapter….
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EC201-13-p3 Perfect competition Perfect competition Price takers Price-taking producers : a producer whose actions have no effect on the market price—price is taken as given Price-taking consumers : a consumer whose actions have no effect on the market price—price is taken as given Perfect competition : a market where all producers and consumers are price takers Consumers are generally price takers—especially in output markets. The question is usually about producers… Key assumptions/characteristics for price-taking producers The market is comprised of a standardized product True for wheat, but not for breakfast cereal Producer’s each have a small market share / share of total output True for wheat growers, but not for cereal producers Free entry / free exit: no obstacles due to government regulations (licenses) or limited access to key resources Just the threat of entry can affect prices!
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EC201-13-p4 Production and Profit Production and Profit Suppose market price is $18 (price takers) Our basic assumption about firms: profit maximizers Total Revenue (TR) = P x Q Profits = TR – TC Optimal decision: Q=5, Profit=18
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EC201-13-p5 Production and Profit Production and Profit - - at the margin at the margin Recall from 9 the principle of marginal analysis: do an activity as long as MB MC If the benefits for one more are greater than costs for one more, you should do one more
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This note was uploaded on 05/18/2010 for the course ECONOMIC Ec 201 taught by Professor Haider during the Spring '10 term at MSU - Iligan Inst of Tech.

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Chap13 - Krugman and Wells Chapter 13 Steven J. Haider...

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