ch 9_Econ 281_Fall_2010 -...

Info iconThis preview shows pages 1–13. Sign up to view the full content.

View Full Document Right Arrow Icon
1 Chapter 9:  Perfectly Competitive Markets Chapter 9:  Perfectly Competitive Markets
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 1. Perfect Competitive markets 2. Profit Maximization 3. Supply curves 4. Long run and short run equilibrium  1. Producer surplus OUTLINE
Background image of page 2
3    consists of  firms that produce identical products that sell at the  same price.   Each firm’s volume of output is so small in  comparison to the overall market demand that no  single firm has an impact on the market price. To get a more formally correct definition, read the beginning of  Ch. 9 on the textbook. perfectly competitive market
Background image of page 3

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
4 The Law of One Price:   There is a single  price at which transactions occur.   Price Takers:  Buyers and sellers take the  price of the product as given when making  their purchase and output decisions.   Free Entry:  Firm can freely access and  enter the market 
Background image of page 4
5 Consider a perfectly competitive market. Now we find out What is the market price Which demand each firm is facing What is total revenue (TR) What is marginal revenue (MR) When a firm is better off shutting down The individual firm’s supply The market supply
Background image of page 5

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
6 Price Taker of what price? Dave runs a small firm producing syrup. Assume that Syrup market is Perfectly Competitive Dave is Price taker. Market demand and Market supply determine the price at which each firm can sell its output. Hence Dave can sell each syrup can at $8
Background image of page 6
7 Demand faced by each firm Dave’s production is so small with respect to the entire market that he can produce as much as he wants and the price on the market will not change He faces a perfectly elastic demand.
Background image of page 7

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
8 Revenue Concepts In perfect competition, market demand and market supply determine price. A firm’s total revenue equals the market price multiplied by the quantity sold. TR=PQ A firm’s marginal revenue is the change in total revenue that results from a one-unit increase in the quantity sold . Dave is price taker: For each unit he sells he receives the market price ($8). Hence the increase in revenue for each extra can of syrup he sells is equal to the market price of syrup ($8). So MR is equal to $8 for each level of Dave’s sales.
Background image of page 8
9 Total Revenue For a price taker firm total revenues (TR) are TR(Q)=PQ where the price P is the market price. Dave TR curve is TR(Q)=8Q
Background image of page 9

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
10 Dave’s marginal revenue curve coincides with the demand curve he faces For a price taker firm total revenues MR=P Where P is the market price
Background image of page 10
11
Background image of page 11

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
12 FIRM’S PROBLEM The problem of the price taking firm: Find the profit maximizing output Economic profit TR TC Profit can be a negative value if TR(q)<TC(q). In this case is a loss.
Background image of page 12
Image of page 13
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 75

ch 9_Econ 281_Fall_2010 -...

This preview shows document pages 1 - 13. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online