EC 201 10-13-08 - Footnote as long as is high enough that...

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EC 201 10-13-08 Market Power- ability of firm to control price Perf. Comp. monopolistic comp. oligopoly monopoly Oligopoly: outcomes depend on collusion Perfect competition- many firms, each small – product: homogeneous standardized o No market power- take market price as given- free entry and exit from industry Price- taking firm’s revenue schedules o Q P ←demand schedule TR =(PQ) Marg. Rev. =(∆TR/∆Q) Avg. Rev. =(TR/Q) 0 $10 $0 - - 1 10 10 10 10 2 10 20 10 10 3 10 30 10 10 4 10 40 10 10 5 10 50 10 10 o Slope of TR curve = Market price o P=D firm= MR= AR o Profit max at Q: MR=MC (in special case of perf. Comp, MR=P →profit max: P=MC) o Mkt. if price changes, firm is still going to choose Q: MR=MC o Perf. Comp. firm’s S curve is its MC curve
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Unformatted text preview: Footnote: as long as is high enough that firm is in business • Next: Profit analysis o P+MR+MC aren’t enough info to calculate profit o Profit=TR-TC divide by Q: Profit/Q = (TR/Q – TC/Q) o Profit per unit= rev. per unit – cost per unity o Avg. profit = AR-ATC AR=TR/Q = PQ/Q →AR=P o Profit per unit = P-ATC o Mult. by Q : profit= (profit per unit) Q = (P-ATC)Q o If profit< 0 (ie, loss), P<ATC at Q* o “Accounting” cost= explicit, out-of-pocket costs o Acctg. Profit= TR- acctg. Cost o Econ. Cost=Acctg. Cost+opportunity cost o Econ. Cost>acctg. Cost o Econ. Profit>acctg. profit...
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