Chapter 8 Profit
Topics to be Discussed
Perfectly Competitive Markets
Marginal Revenue, Marginal Cost, and Profit
Choosing Output in the Short Run
The Competitive Firms
Introduction. The problems in this chapter examine some variations on
the apartment market described in the text. In most of the problems we
work with the true demand curve constructed from the reservation prices
of the consumers
Rayo, Erika Joy A. MODADV3 K31 Answer to Kieso Exercise 13-5
12 July 2010 Prof. Florenz Tugas
Matt Broderick Company began operations on January 2, 2006. It employs 9 individuals who work 8-hour days and are paid hourly. Each employee earns 10 paid vacati
The problems in this chapter examine some variations on the apartment
market described in the text. In most of the problems we work with
the true demand curve constructed from the reservation prices of the
consumers rather than the smoothed demand curve t
Information in Competitive Markets
In purely competitive markets all
agents are fully informed about
traded commodities and other
aspects of the market.
x What about markets for medical
services, or insurance, or
The Theory of Economics does not
furnish a body of settled conclusions
immediately applicable to policy. It is
a method rather than a doctrine, an
apparatus of the mind, a technique of
thinking which helps its possessor to
Public Goods - Definition
A good is purely public if it is both nonexcludable and nonrival in consumption. Nonexcludable - all consumers can consume the good. Nonrival - each consumer can consume all of the good.
Rationality in Economics
A decisionmaker always chooses its
most preferred alternative from its
set of available alternatives.
x So to model choice we must model
Law and Economics
Effects of Laws
Property right assignments affect asset, income and wealth distributions; ye.g. nationalized vs. privately owned industry.
Effects of Laws
Property right assignments affect asset, income and wealt
Budgetary and Other Constraints on Choice
Consumption Choice Sets
A consumption choice set is the collection of all consumption choices available to the consumer. x What constrains consumption choice? Budgetary, time and other resource limitat
The principal behavioral postulate is
that a decisionmaker chooses its
most preferred alternative from those
available to it.
x The available choices constitute the
x How is the most preferred bundle in
Economics 102 - Microeconomics
Contents of the Kit
Electronic Book of Intermediate Microeconomics by Varian, Hal (7th Edition) - pdf version
Notes for Intermediate Microeconomics by Varian, Hal - pdf version
Workout Book for Intermediate Microeconomics by
Computers, answering machines, FAXes, pagers, cellular phones, x Many provide strong complementarities. x E.g. email is useful only if lots of people use it - a network externality. x And
Preferences - A Reminder
x y: x is preferred strictly to y.
x x y: x and y are equally preferred.
x x y: x is preferred at least as
much as is y.
Preferences - A Reminder
Completeness: For any two bundles
x and y it is always po
Two consumers, A and B.
x Their endowments of goods 1 and 2
= ( 1 , 2 ) and = (1 , 2 ).
E.g. = ( 6,4 ) and = ( 2, 2).
x The total quantities available
are 1 + 1 = 6 + 2 = 8 units of good 1
Exchange Economies (revisited)
No production, only endowments, so no description of how resources are converted to consumables. x General equilibrium: all markets clear simultaneously. x 1st and 2nd Fundamental Theorems of Welfar
Supply From A Competitive Industry
How are the supply decisions of the
many individual firms in a
competitive industry to be combined
to discover the market supply curve
for the entire industry?
Supply From A Competi
technology is a process by which
inputs are converted to an output.
E.g. labor, a computer, a projector,
electricity, and software are being
combined to produce this lecture.
Chapter 4 Individual
and Market Demand
Topics to be Discussed
Income and Substitution Effects
Empirical Estimation of Demand
Using the figures developed in
A firm uses inputs j = 1,m to make
products i = 1,n.
x Output levels are y1,yn.
Input levels are x1,xm.
Product prices are p1,pn.
Input prices are w1,wm.
The Competitive Firm
The competitive f
A Competitive Firms Input Demands
A purely competitive firm is a pricetaker in its output and input markets.
x It buys additional units of input i
until the extra cost of extra unit
exceeds the extra revenue generated
How Should a Monopoly Price?
So far a monopoly has been thought
of as a firm which has to sell its
product at the same price to every
customer. This is uniform pricing.
x Can price-discrimination earn a
A monopolized market has a single
x The monopolists demand curve is
the (downward sloping) market
x So the monopolist can alter the
market price by adjusting its output
A firm is a cost-minimizer if it
produces any given output level y
0 at smallest possible total cost.
x c(y) denotes the firms smallest
possible total cost for producing y
units of output.
x c(y) is the
A monopoly is an industry consisting
a single firm.
x A duopoly is an industry consisting of
x An oligopoly is an industry consisting
of a few firms. Particularly, each
firms own price or output decision
Game theory models strategic
behavior by agents who understand
that their actions affect the actions
of other agents.
Some Applications of Game Theory
The study of oligopolies (industries
containing only a fe
An externality is a cost or a benefit
imposed upon someone by actions
taken by others. The cost or benefit is
thus generated externally to that
x An externally imposed benefit is a
Different economic states will be
preferred by different individuals.
x How can individual preferences be
aggregated into a social
preference over all possible
x, y, z den
Properties of Demand Functions
Comparative statics analysis of
ordinary demand functions - the
study of how ordinary demands
x1*(p1,p2,y) and x2*(p1,p2,y) change as
prices p1, p2 and income y change.
How does x1*(p
Lecture 10: Equilibrium
The effects of taxes
Supply curve measures how much a firm is
willing to supply of a good at each
Lecture 9: Market Demand
The slope of the demand curve
The price elasticity of demand
Elasticity and revenue
The income elasticity of demand
The market demand for good 1, also called
Lecture 6: Theory of the
Changes in income
Income changes and offer curves and Engel
Changes in prices
Price offer curve and demand curves
Substitutes and complements
Inverse demand function
Lecture 2 - Theory of the
Consumer; Budget Constraint
Overview of lecture
The budget constraint
Notations and assumptions
Properties of the budget set/constraint
Effects of changes in income and prices