Chapter 14 - Chapter 14 Firms in Competitive Markets What...

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Chapter Firms in Competitive Markets 14
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What is a Competitive 22
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What is a Competitive 33
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What is a Competitive 44
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Table Total & marginal revenue - 55 Quantity (Q) Price (P) Total revenue (TR=P ˣ Q) Marginal revenue (MR= Δ TR/ Δ Q) 1 gallon 2 3 4 5 6 7 8 $6 6 6 6 6 6 6 6 $6 12 18 24 30 36 42 48 $6 6 6 6 6 6 6
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Profit Maximization& Competitive Firm’s Supply Curve 66
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Table Profit maximization: A 77 Quantit y (Q) Total revenue (TR) Total cost (TC) Profit (TR- TC) Marginal Revenue (MR= Δ TR/ Δ Q) Marginal Cost (MC= Δ TC/ Δ Q) Change in profit (MR- MC) 0 gallons 1 2 3 4 5 6 7 8 $0 6 12 18 24 30 36 42 48 $3 5 8 12 17 23 30 38 47 -$3 1 4 6 7 7 6 4 1 $6 6 6 6 6 6 6 6 $2 3 4 5 6 7 8 9 $4 3 2 1 0 -1 -2 -3
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Profit Maximization& Competitive Firm’s Supply Curve 88
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Profit Maximization& Competitive Firm’s Supply Curve 99
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Figure Profit maximization for a 10 C o s t s a n d R e v e n u e This figure shows the marginal-cost curve (MC), the average-total-cost curve (ATC), and the average-variable-cost curve (AVC). It also shows the market price (P), which equals marginal revenue (MR) and average revenue (AR). At the quantity Q1, marginal revenue MR1 exceeds marginal cost MC1, so raising production increases profit. At the quantity Q2, marginal cost MC2 is above marginal revenue MR2, so reducing production increases profit. The profit-maximizing quantity QMAX is found Quantity 0 AT C AV C P=AR=MR P=MR1=MR 2 MC MC 1 MC 2 Q 2 Q 1 Q M A X The firm maximizes profit by producing the quantity at which marginal cost equals marginal revenue.
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Profit Maximization& Competitive Firm’s Supply Curve 11
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Figure Marginal cost as the 12 P r i c e An increase in the price from P1 to P2 leads to an increase in the firm’s profit- maximizing quantity from Q1 to Q2. Because the marginal-cost curve shows the quantity supplied by the firm at any given price, it is the firm’s supply curve. Quantity 0 AT C AV C MC P1 P2 Q 2 Q 1
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Profit Maximization& Competitive Firm’s Supply Curve 13
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Profit Maximization& Competitive Firm’s Supply Curve 14
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Figure The competitive firm’s short- 15 C o s t s
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Chapter 14 - Chapter 14 Firms in Competitive Markets What...

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