Ch13Figures - Ch. 13 Figures Table 13.1 Summary of the...

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Ch. 13 Figures Table 13.1 Summary of the Features of Market Structures The table summarizes the conditions we assume for the market structures of perfect competition, monopolistic competition, oligopoly, and monopoly. Conditions that differentiate market structures include the number of firms, the products of firms, and whether there are barriers to the entry of new firms. number of firms many many few one product of firms identical similar, but not identical identical or similar no close substitutes barriers to entry no no yes yes CONDITION MARKET STRUCTURE Perfect Competition Monopolistic Competition Oligopoly Monopoly
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Ch. 13 Figures Figure 13.1 The Market for Airplanes and the Demand for Supersonic Econ’s Airplanes Part (a) shows the market demand and supply curves in the perfectly competitive market for paper airplanes. Part (b) shows the horizontal demand curve for Supersonic Econ at the equilibrium price of $20. The demand curve is horizontal because a perfectly competitive firm can sell as few or as many planes as it wants, but can only sell at the market equilibrium price of $20. p 0 5 10 15 20 25 0 360 540 630 720 Quantity of Airplanes $ / Airplane S D E 450 horizontal demand curve for the firm at the equilibrium price of $20 (b) horizontal demand curve for the firm (a) equilibrium in the market quantity demanded and supplied are equal in the market at the equilibrium price of $20 0 5 10 15 20 25 0 1 2 3 4 5 6 7 8 9 10 11 12 Quantity of Airplanes
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Ch. 13 Figures Figure 13.2 Supersonic Econ’s Total Cost, Total Revenue, and Profit Supersonic Econ’s cost information is repeated from Chapter 12. Costs are determined by the production technology and the cost of its factors of production. Total revenue is equal to the market equilibrium price of $20 times the number of planes sold. Profit is equal to total revenue minus total cost. The table shows that profit is maximized when 9 planes are produced. Supersonic Econ should continue to produce more planes when the market price is at least as great as its marginal cost of production. The graph shows profit is maximized by producing the number of planes for which the market price is equal to its marginal cost --- 9 planes. 0 5 10 15 20 25 01234567891 01 1 1 2 Quantity of Airplanes $ / Airplane Quantity of Airplanes Total Cost ($) Total Revenue ($) Profit ($) 0 30.00 0 -30.00 1 35.60 20 -15.60 2 38.39 40 1.61 3 39.59 60 20.42 4 40.38 80 39.62 5 41.98 100 58.03 6 45.57 120 74.43 7 52.37 140 87.64 8 63.56 160 96.44 9 80.36 180 99.65 10 103.95 200 96.05 11 135.55 220 84.46 12 176.34 240 63.66 price = marginal cost maximizes profit MC p AVC ATC
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Ch. 13 Figures Figure 13.3 Supersonic Econ’s Variable Cost, Fixed Cost, Total Revenue, and Profit Part (a) shades total revenue, Part (b) shades total cost, and Part (c) shows the profit from producing 9 airplanes as rectangles in the cost curve graph. Total revenue is equal to the market price of $20 times the profit-maximizing quantity of 9, variable cost is average variable cost times quantity and fixed cost is average fixed cost times quantity. Profit is equal to total revenue minus total cost. Notice profit can also be viewed directly as a rectangle with the height of price minus average total cost and the width of the profit- maximizing quantity of 9.
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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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Ch13Figures - Ch. 13 Figures Table 13.1 Summary of the...

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