rohlf_lecture8 - Chapter 6 Price Taking: The Purely...

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Chapter 6 Price Taking: The Purely Competitive Firm
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2 Perfectly competitive assumptions Many firms All produced same product Firms take price as given Price determined in market for product where S=D
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3 EXHIBIT 6.1 The Firm as a Price Taker
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4 Perfectly competitive firms Given price, firm chooses level of output to maximize profit What level of output maximizes profit? Where P = MC.
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5 EXHIBIT 6.2 Finding the Profit- Maximizing Output Graphically
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6 Economic and Accounting Profit Economic profit includes opportunity cost Accounting profit does not Profit you see in newspaper is accounting profit Important – if economic profit is zero this means that you cannot make a greater return on your investment in some other industry
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7 Graphical depiction of profit and loss using areas Profit = TR – TC TR = P*Q, which is an area in the graph TC: Since AC = TC/Q, AC*Q = TC AC*Q = TC is also an area on the graph Subtract TC area from TR area This gives an area that represents profit (if positive) or loss (if negative)
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8 EXHIBIT 6.3 Determining the Profit or Loss
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9
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10
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11 EXHIBIT 6.4 positive profit, zero profit, and losses
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rohlf_lecture8 - Chapter 6 Price Taking: The Purely...

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