H14CompetitiveFirms - Competitive Firm 51 Assumptions of...

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1 Assumptions of competitive model homogeneous product everybody (firms and consumers) small every firm and consumer price-taker no barriers to entry perfect information Competitive Firm Competitive Firm 51 Assumptions of competitive model homogeneous product everybody (firms and consumers) small every firm and consumer price-taker no barriers to entry perfect information Profit maximization Quantity ($) Market Price MC Competitive Firm Competitive Firm price determined where Q d =Q s in market firm can produce and sell all that it wants at market price, P demand curve firm faces is perfectly elastic P = MC Q * 51 MR = TR/ Q = P = ( supply curve is upward- sloping section of MC curve Profit maximization Competitive Firm Competitive Firm price determined where Q d =Q s in market firm can produce and sell all that it wants at market price, P demand curve firm faces is perfectly elastic P = MC 51 MR = TR/ Q = P = ( supply curve is upward- sloping section of MC curve Quantity ($) S
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2 Output Total Cost ($) Total Revenue ($) P = $ 150 Profit ($) Marginal Cost ($) 0 200 0 -200 2 360 300 -60 4 440 600 160 6 480 900 420 8 540 1200 660 10 640 1500 860 12 800 1800 1000 14 1040 2100 1060 16 1360 2400 1040 18 1760 2700 940 20 2240 3000 760 80 40 20 30 50 80 120 160 200 240 0 1000 2000 3000 0 2 4 6 8 1 01 21 41 61 82 0 Costs ($) 0 50 100 150 200 250 0 2 4 6 8 1 01 21 41 61 0 Output Quantity Costs ($) AVC ATC TC MC TR P Firm Behavior Firm Behavior TR = pQ Profit = TR - TC 150 Profit maximized when p = MC 51 FC Profit 0 or firm exits industry Profit = TR - TC Quantity ($) MC AVC ATC Market Price Profit 0 TR TC VC TR Long Run Long Run = PQ - (ATC Q)= Q( P - ATC) P ATC Profit Q * 52
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This note was uploaded on 01/24/2012 for the course ECON 101 taught by Professor Gerson during the Fall '08 term at University of Michigan.

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H14CompetitiveFirms - Competitive Firm 51 Assumptions of...

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