Econ301_week5

Econ301_week5 - Econ 301 Intermediate Microeconomics Week 5 Jul 12-Jul 16 Jingbo Cui(ISU Econ 301-Summer 2010 Week 5 Jul 12-Jul 16 1 65 Outline 1

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Unformatted text preview: Econ 301 Intermediate Microeconomics Week 5, Jul 12-Jul 16 Jingbo Cui (ISU) Econ 301-Summer 2010 Week 5, Jul 12-Jul 16 1 / 65 Outline 1 Competitive Firms and Markets (Ch.8) Competition Profit Maximization Competition in the Short-Run Competition in the Long-Run 2 Properties and Applications of the Competitive Market (Ch.9) Producer Welfare How Competition Maximizes Welfare Policies That Shift Supply Curves Policies That Create a Wedge Between Supply and Demand Curves Jingbo Cui (ISU) Econ 301-Summer 2010 Week 5, Jul 12-Jul 16 2 / 65 Introduction ”How much should firm produce?” To pick a level of output that maximizes a profit, a firm must consider its cost and how much it can sell at a given price. The amount it can sell depends on the market demand of consumers and the firm’s beliefs about how other firms behave. The behavior of firms depend on the market structure: the number of firms in the market; the ease with which firms can enter and leave the market the ability of firms to differentiate their products from those of their rivals. Jingbo Cui (ISU) Econ 301-Summer 2010 Week 5, Jul 12-Jul 16 3 / 65 Competitive Firms and Markets (Ch.8) Competition Price Taking A market is competitive if each firm in the market is a price taker . Price taker- a firm that cannot significantly affect the market price for its output or the prices at which it buys its inputs. The price taker firm faces a demand curve that is horizontal at the market price. Example Does the supply of any single corn, wheat, soybean, etc. farm have any measurable impact on the supply of grain? Do farmers have any power to set or even affect market prices? Not really. We would say that they are price-takers Jingbo Cui (ISU) Econ 301-Summer 2010 Week 5, Jul 12-Jul 16 4 / 65 Competitive Firms and Markets (Ch.8) Competition Competition Perfectly competitive markets are important for two reasons: many markets can be reasonably described as competitive, i.e. agricultural and other commodity markets, stock exchange, retail and wholesale markets, etc; a perfectly competitive market has many desirable properties, Four properties of a perfectly competitive markets: Consumer believe that all firms in the market sell identical products, or homogeneous or undifferentiated products; Firms freely enter and exit the market; Buyers and sellers know the prices charged by firms; Transaction costs- the expenses of finding a trading partner and making a trade for a good or service other than the price paid for that good or service - are low . Jingbo Cui (ISU) Econ 301-Summer 2010 Week 5, Jul 12-Jul 16 5 / 65 Competitive Firms and Markets (Ch.8) Profit Maximization Concepts A firm’s profit , π , is the difference between a firm’s revenues, R , and its cost, C : π = R- C . If profit is negative, π < 0, the firm makes a loss ....
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This note was uploaded on 08/01/2011 for the course ECON 301 taught by Professor Corinnelanginier during the Summer '07 term at Iowa State.

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Econ301_week5 - Econ 301 Intermediate Microeconomics Week 5 Jul 12-Jul 16 Jingbo Cui(ISU Econ 301-Summer 2010 Week 5 Jul 12-Jul 16 1 65 Outline 1

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