301lec15

# 301lec15 - Lecture 15 Econ 301 Professor S.Severinov Market...

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Lecture 15 Econ 301 Professor S.Severinov Market Supply Short-run and Long run

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Topics Review of Firm’s supply Short-Run Market Supply Long Run Market Supply
Review: Competitive Firm’s Short-Run Supply Curve Price (\$ per unit) Output MC AVC ATC P SRST = min AVC P 2 q 2 The firm chooses the output level where P = MC, as long as P > AVC. P 1 q 1 S Supply is MC above AVC

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Review: Competitive Firm’s Long-Run Supply Curve Price (\$ per unit) Output MC AVC ATC P 2 q 2 The firm chooses the output level where P = MC, as long as P > ATC. P LRST Long-run Supply is MC above AC
Review: A Competitive Firm – Positive Profits 10 20 30 40 Price 50 0 1 2 3 4 5 6 7 8 9 10 11 Output q 2 MC AVC ATC q * AR=MR=P A q 1 D C B Profits are determined by output per unit times quantity Profit per unit = P- AC(q) = A to B Total Profit = ABCD

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A Competitive Firm – Losses Price Output MC AVC ATC P = MR D At q * : P=MC and P < ATC Losses = (P- AC) x q * or ABCD q * A B C
Short-run Supply Choose quantity such that MC = P Short run shut-down price is the minimum of AVC Long run shut-down price is the minimum of ATC

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Short-Run Market Supply Curve Shows the amount of product the whole market will produce at given prices Is the sum of all the individual producers in the market We can show graphically how we can sum the supply curves of individual producers
MC 3 Industry Supply in the Short Run \$ per unit MC 1 S The short-run industry supply curve is the horizontal summation of the supply curves of the firms. Q MC 2 15 21 P 1 P 3 P 2 10 8 2 4 7 5

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Producer Surplus Producer Surplus is the area between the price line and the marginal cost curve. which is the same as the difference between revenue and its total variable cost We can show this graphically by the rectangle ABCD Revenue (0ABq*) minus variable cost (0DCq*)
Producer surplus is also ABCD = Revenue minus variable costs Producer Surplus of a Firm Price (\$ per unit of output) Output Producer Producer Surplus Surplus AVC AVC MC MC A B P q * C D Producer surplus is area between MC and the price

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301lec15 - Lecture 15 Econ 301 Professor S.Severinov Market...

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