Microsoft PowerPoint - lecture 11 - perfectcomp

Microsoft PowerPoint - lecture 11 - perfectcomp - 2 11 2...

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1 Perfect Competition What is Perfect Comp? • Perfectly Divisible • Homogenous • Perfect information • Entry/Exit • Price Takers Profit Maximization • What does the demand curve for an individual firm look like? • What is the elasticity of demand for a perfectly competitive firm? • Maximize p*q – TC(q) – Price is given Perfectly Competitive Markets Price taker A buyer or seller that is unable to affect the market price. 11 - 1 A Perfectly Competitive Firm Faces a Horizontal Demand Curve a Perfectly Competitive Market Profit Total revenue minus total cost. Profit = TR - TC LEARNING OBJECTIVE
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Unformatted text preview: 2 11 - 2 The Market Demand for Wheat versus the Demand or One Farmer’s Wheat Don’t Confuse the Demand Curve for Farmer Douglas’s Wheat with the Market Demand Curve for Wheat Profit Maximization • Profits are maximized when marginal revenue equals marginal cost. – Calculus – Intuition: additional revenue exceeds additional costs, firm should increase output. • What is Marginal Revenue? • Produce where P = MC 2 Perfect Comp q $ Price AVC MC ATC $ Q Demand Supply • Profit = ( P x Q ) − TC LEARNING OBJECTIVE 3 − × Q Q P ) ( = Q Profit Q TC ,...
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Microsoft PowerPoint - lecture 11 - perfectcomp - 2 11 2...

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