Introduction of Microeconomic_CAPI.ppt

Lectured By: Mr. Van Nimol,
Lecturer of Economic, Law and
Management
Introduction to
Microeconomics

Lecturer’s Information
Lecturer Name : Mr. Van Nimol
Lecturer Degree: Bachelor degree of
Economics, Law and Mater degree of
Management
Communication with lecturer
Mobile Phone: 012 291 589
E-mail address: nimolvan07@yahoo.com
Lecturer’s experience:
Title: Project coordinator, Advisor, Specialist and
Capacity building coordinator and lecturer
Organization: UN, IOs, NGOs and Private sectors
• .

Course Description
Course of introduction to economic
primarily focuses on an overview of
economics, elements of microeconomics,
theory of consumers’ behavior, concept of
production, cost of production and
competitions. In addition, we will try to
evaluate the long lasting impact of
economic ideas on our lives, economic
policy, and subsequent economic thought.

Time and Duration
This course will be spend around 4 months with total
amount 30 sessions which equal 45 hours.
These sessions are divided into lecture sections,
group discussion, group presentation, quiz and
examination.

Attendance and Participation
This course is lecture and seminar , i.e. based on lecture
and class discussion and students presentations.
Therefore, attendance is mandatory. Missing 5 classes
during the semester is considered perfect attendance.
For each additional class that you miss, I will take off 5
points from your final grade. For example, if you miss 10
classes during the semester, your final grade in this
course will not exceed 90. Your participation in class
discussions is very important. I expect students to share
their ideas and argue with their classmates and with me.
Students who actively participate in class discussions
will earn 10 bonus points for their final grade.

In class presentations
Each student is expected to give one or more in-class
presentation on assignement. The presentations
account for 15% of your final grade. This means that if
you refuse to present or missed your deadline, your
final grade will not exceed 85. The number of
presentations depends on the class size. All the
presentations must be prepared within Power Point.

Examination
 This course has two examination: one is Mid-Term
Exam and Second is final exam.
Mid-Term Exam will be conducted after haft of total
topics of course are finished.
Final Exam will be conducted after total topics of
course are finished. Noticed that this course is
organized by the university.

Statement on Disruptive Classroom Behavior
The classroom is a special environment in which
students and faculty come together to promote learning
and growth. It is essential to this learning environment
that respect for the rights of others seeking to learn,
respect for the professionalism of the lecturer and the
general goals of academic freedom are maintained.
Differences of viewpoint or concerns should be
expressed in terms which are supportive of the learning
process, and to develop and understanding of the
community in which they live. Student conduct which
disrupts the learning process shall not be tolerated and
may lead to disciplinary action and/or removal from
class.

Statement on Disruptive Classroom Behavior-
Cont’
I consider the following a disruptive classroom behavior:
1. Coming late on a regular basis,
2. Using cell-phone during the Lecture and class
discussion
3. Using computer during lecture and class discussion
4. Doing homework for other courses or reading other non-
related material during the lecture and class discussion
5. Unsuitable clothes during class attendance
In other words, I expect students to spend the time of the
seminar on the seminar itself, and not on other activities.

Syllabus is Subject to Change
This syllabus and schedule are subject to change in
the event of extenuating circumstances. If you are
absent from class, it is your responsibility to check on
announcements made while you were absent.

Training Curriculum
Topic Objectives Methodology Session
An overview to
economics
- To
understand
the definition
of economics
- To explore
factors
influenced on
economics
and economy
system
- To
understand
on social
goals of
economy
- Lecture
- Brainstorming
- Group
discussion
- Quiz
8 sessions

Training Curriculum
Theory of
consumers’
behaviour
- To
understand of
consumers’
behavior
- To identify the
decision
making for
producing
and
consuming
- Lecture
- Brainstorming
- Group
discussion
- Quiz
4 sessions

Training Curriculum
Concept of
Production
- To
understand
the meaning
of production
- To explain the
factors of
production
- Lecture
- Brainstorming
- Group
discussion
- Quiz
4 sessions

Training Curriculum
Production cost - To
understand
cost of
production
- To explain the
cost of
production for
reducing cost
- Lecture
- Brainstorming
- Group
discussion
- Quiz
6 sessions

Training Curriculum
Mid-term and
Presentation
Assignment
- To identify
knowledge of
students
- Examination
and
presentation
2 sessions

Training Curriculum
competition - To define the
meaning of
competition
- To describe
advantage
and
disadvantage
of competition
- Lecture
- Brainstorming
- Group
discussion
- Quiz
4 sessions

Assignment
• Instruction:
The students has to establish a group for assignment. Each
group should have 1 to 5 members. Once the group is established,
each group has to conduct a research and presentation on the topic
which is provided by the lecturer. Each group has to present the
chose topic during tutorial session for 25 minutes. Each group has
four weeks for preparing topic before submit the report of your topic
presentation. The presentation begins at the fifth week.
17

Assignment-Cont’
• Presentation Guideline:
– Presentation tools: Powerpoint or Transparency.
– Duration : 25 minutes ( 20 minutes for main
presentation and
– 5 minutes for Q&A session from lecturer/friends)
– Format: Introductory, topic discussion and summary.
18

Assignment-Cont’
• Score of Assignment :
– Each topic has 20 % of total scores which divided into 3
kinds:
• 10 % for text book
• 5 % for presentation which divided into 4 kinds:
+ 1 % for Clothes
+ 2 % for Explanation
+ 1 % for Body language
+ 1 % for Presentation Methodology
– 5 % for Questions and Answers ( Individual or Group)
19

Assignment-Cont’
• Assignment Body :
– Cover Page ( See below…)
– Content
– Meaning
– References
20

Assignment-Cont’
• References:
Writing References follow through instruction below:
– From Textbook:
• David Hill (2005), Principle of management, 7thedi., Prentice-Hall, Inc.
– From Website
• www.abc.org/accounting records/html [accessed 22/08/05]
– From Report, Newspaper, Magazine, Journal
• David Hill (2005), Accounting Records, Journal of Accounting, vol.12,
pp.12-14.
– Without editor name
• CDRI (2005), GDP of Cambodia, Working Paper, vol.12, pp.5-10
21

Assignment-Cont’
• Topic:
Economic Theory of:
1. Adam Smith
2. David Ricardo
3. John Maynard Keynes
4. Thomas Robert Malthus
5. John Stuart Mill
6. Alfred Marshall
7. Karl Marx
22

Assignment-Cont’
• Points to be focused:
1. Background of Economist
2. Economic Theory
3. Advantages of the Economic
Theory
4. Disadvantages of the Economic
Theory
5. Conclusion
23

Lectured By: Mr. Van Nimol,
Lecturer of Economic, Law and
Management
An overview of
Economics

An Overview of Economics
Each people is confront with on
decision involving money expense
and products consumption. This
mean that they are considering about
what product should they use with
their limited money.

What is Economics?
The study of how people make
choices under conditions of scarcity
and of the results of those choices for
society.

Divisions of Modern Economic Theory
 Microeconomics – The study of
individual choice under scarcity
and its implications for the behavior
of prices and quantities in
individual markets
 Macroeconomics – The study of
the performance of national
economies, and of the policies that
governments use to try to improve
that performance

What is Economic study?
The Scarcity Principle
– Boundless wants cannot be satisfied
with limited resources.
– Therefore, having more of one thing
usually means having less of another.
– Because of scarcity we must make
choices.

1) What to produce: what goods and services and what quantity are to
be produced. 2) How to produced: Selection of production
technique – capital or labour intensive. 3) For whom to produced:
distribution among the different income groups, regions and social
groups. Other economics problems (sustainable development,
environmental protection, economic growth and development,
corruption and clean government, democracy .. etc).
Unlimited Wants
Basic Economic Problems
Limited
Resources

Scarcity and Individual Choice
• There are an unlimited variety of scarcities, however
they are all based on two basic limitations
– Scarce time
– Scarce spending power
• Limitations force each of us to make choices
• Economists study choices we make as individuals,
and consequences of those choices
• Economists also study more subtle and indirect
effects of individual choice on our society

Scarcity and Social Choice
• The problem for society is a scarcity of resources
– Scarcity of Labor
• Time human beings spend producing goods and services
– Scarcity of Capital
• Something produced that is long-lasting, and used to make other things
that we value
– Human capital
– Capital stock
– Scarcity of land
• Physical space on which production occurs, and the natural resources
that come with it
– Scarcity of entrepreneurship
• Ability and willingness to combine the other resources into a productive
enterprise
• As a society our resources—land, labor, and capital—are
insufficient to produce all the goods and services we might
desire
– In other words, society faces a scarcity of resources

Opportunity Cost
Opportunity cost occurs due to: limited resources and unlimited
wants. This create scarcity which leads to choice. We can not
have everything what we want. Therefore, if we want to have one
more we have to sacrifice something.
A sacrificed best opportunity is called an opportunity cost.
A opportunity cost of a good is the quantity of other goods
sacrificed to obtain another unit of that good.
A opportunity cost of particular action or activity is the loss of the
opportunity to pursue the most attractive alternative given the
same time and resources
A opportunity cost for free good is zero.
A opportunity cost for economic good is positive.

PPF DEFINED
• The Production Possibility Curve (or
frontier) shows the maximum amount
of a good you can produce given the
amounts of other goods produced,
and given the total amounts of inputs
available, and given the technology of
production.

PPC EXAMPLE
• Assumptions:
– There are only two goods, computer and
movies.
– There are limited inputs and given technology
of production.
• Definition:
– The PPC shows the maximum amount of
movies you can produce, given the amount of
computer to be produced.

PRODUCTION POSSIBILITY CURVE
computer
movie
Which points are attainable
and which points are unattainable?
0
100
200
300
400
0 10 20 30 40 50 60

Computer
Movie
What’s the effect of an improvement
in the technology for producing
Computer?
0
100
200
300
400
0 10 20 30 40 50 60

Computer
Movie
What’s the effect of an increase in
total resources (inputs)?
0
100
200
300
400
0 10 20 30 40 50 60

• Points “inside” the PPC are
inefficient.
• For any point “inside” there
corresponds some point that
represents more production of both
goods.
• Note that while points on the PPC are
efficient, we cannot say at this time
whether some are better for society
than others.

Factors of Production (productive resources)
Primary factors (not the result of the economic process)
1) Land (free gifts of nature including space and
natural resources. Rents are the earnings. Features:
fixed in supply, no cost in production for society,
earn different rents for different lands).
2) Labour (physical labour and intellectual services,
earn wages/salary).

Secondary factors (results of economic efforts)
3) Capital (stock of physical wealth of nation, fixed or
variable, earn interests).
4) Entrepreneurship (organize factors of production to
produce final products and risk bearer of business,
and earn profits).
5) Knowledge and technology.
(Attitude, political, social and
environmental systems).

Demand
• If you demand something, then you
 Want it
 Can afford it, and
 Plan to buy it
• So, The term of demand refers to the
entire relationship between the price
of goods and the quantity demanded
of goods.

Demand-Factor influenced on Demand
Price of related
Goods
-Substitute goods
- Complementary
goods
The consumer’s
Expectation of
Future price
Number of
Consumer’s in
The population
Consumer’s
Income
Consumer’s
information
Consumer’s
preference
Factors influenced
On Demand
48

Demand- Law of Demand
• Demand decrease when Price
increase
• Demand increase when Price
Decrease
Price
Q1
Decrease Increase
0
P2
P1
P3
Q2
Demand
Q3

Supply
• Supply is the quantity per unit of time
of a standardized product or
resources which is willingly produced
for sale at the various prices.
• The definition of supply is quite
similar to that for demand except that
concern is with production and selling
while that of demand is with buying.

Supply-Factor influenced on
Demand
Government
taxes
Subsidies
regulation
Expectations of
Price in the
future
The number of
Firm in the
market
The cost of
Production
factors
Technology
Factors influenced
On Supply
51

Supply- Law of Supply
• Supply decrease when Price
Decrease
• Supply increase when Price Increase
Price
Q1
Decrease Increase
0
P3
P1
P2
Q2
Supply
Q3

Market Equilibrium
• Market Equilibrium is a point that
Demand equal supply.
• Shortage is a point that demand
bigger than Supply.
• Surplus is a point that demand
smaller than supply.

Market Equilibrium-example
• Assume that a motorbike sale at price
$60
and demand is 11 millions motorbike
per year and supply is 6 millions
motorbike per year.
• Assume that a motorbike sale at price
$440 and demand is 4 millions
motorbike per year and supply is 11
millions motorbike per year.

Market Equilibrium-example
Price
Shorta
ge
S
D
Quanti
ty
Surplu
s
P1
P
P3
Q
0

Economic Systems
Economic systems differs according the ways in which
they answered for these basic economic problems.
1) Free market or capitalist economy (price mechanism).
2) Socialist economy (government and central board).
3) Mixed economy (both government and price
mechanism).
4) Traditional economy

6 Economic Social Goals
• Economic Freedom
• Economic Equity
• Economic Security
• Price Stability
• Economic Growth
• Economic Efficiency
57

Economic Freedom
• Individuals have freedom to choose
their own occupations, employers,
and spending habits.
• Businesses have freedom to choose
how and where to produce
goods/services.
• Are we meeting this goal?

Economic Equity
• People should receive equal pay for equal work.
• People should receive adequate pay for the work
they perform.
• People should all have the same opportunities to
get ahead.

Economic Security
• We should have protection from negative
economic events such as layoffs and injuries.
– Social Security – federal program that provides
disability and retirement benefits.
– Medicare
• Everyone should have their basic needs met.

Price Stability
• We should have stable prices that
protect against inflation.
– Inflation – a rise in the general level of
prices.

Economic Growth
• Increasing the production of goods
and services over time
• Measuring by gross domestic product
(GDP)
• Constant Improvement

Economic Efficiency
• Insuring optimal utilization of scarce
resources; prevention of waste of the
nation’s resources; and getting the
most out of available resources.
• Max value for min. cost

Topic II
Theory of Consumer behavior
Lectured By : Mr. Van Nimol, Lecturer
of Law, Economics, and Management

Course Outline
 Principles of consumer behaviors
 Factors influences on consumer
behaviors

I. Introduction :
 According to consumer resources
limited, Consumer need to desire
which goods or services should be
used.
 This reason leading all consumer to
think about utility of goods and
services which they are use.

II. Principals of consumer behavior :
 Consumers are consumption a goods and
services unless they are not get utility.
 The Principals of Consumer behavior for
using a goods and services :
 Low price
 Increase utility when increase consumption
 Utility from goods and services must fit with
resources spend.
 Utility of related goods and services
 Price of related goods and services

Principals of consumer behavior :
Example
Meal
consumed
Total
Utility
(TU)
Marginal
Utility (MU)
0 0 -
1 10 10
2 18 8
3 24 6
4 28 4
5 30 2
6 30 0
7 28 -2 -5
0
5
10
15
20
25
30
35
0 5 10
utility
Marginal
utility
Marginal
Utility is
Utility per
unit when
consumer
used more
product.

III. Factors influenced on Consumer behavior :
1. Income :
 Consumers have many choice for
using two or more goods and services
with price and their resources.
 For example, Price of goods A = 2$
and Goods B = 1 $ and Resources
10$.
See Table next slide.

II. Principals of consumer behavior:
2. Budget Line:
Units of
Goods A
Units of
Goods B
Resources
1 8 10
2 6 10
3 4 10
4 2 10
0
1
2
3
4
5
6
7
8
9
1 2 3 4
Goods
B
Goods
A
Budget Line

1. Income :
 Depended on last slide, we see that
consumer have to decide how many goods
A and B should be buy.
 Economist observed that consumer will
consume two goods or more unless they
get the same utility from those product
compare with each price.
MUx MUy
Utility Maximization: =
Px Py

Product A = 1$ and Product B = 2
$ and Resources 10$
Q TUa MUa MUa/
Pa
TUb MUb MUb/
Pb
0 0 - - 0 - -
1 29 29 29 20 20 10
2 46 17 17 34 14 7
3 53 7 7 44 10 5
4 55 2 2 47 3 1.5
5 56 1 1 47 0 0
6 56 0 0 42 -5 -2.5
7 52 -4 -4 32 -10 -5

So, Depended on the
table consumer should
buy product A 3 units
and product B 2 Units in
order to get utility
maximization because
this point make :
MUa/Pa = MUb/Pb = 7
and consumer can
allocated money 3 $.
0
1
2
3
4
5
6
7
8
9
1 2 3 4
Goods
B
Goods
A
Budget Line
Utility
Maximization

2. Price of Substitute goods or services:
 When increase price in substitute
product push consumer change their
consumption in order to get utility
maximization.
 This situation economist called
Marginal Rate of Substitute (MRS)
Change in Product X(X2 – X1)
 MRS =
Change in product Y (Y2- Y1)

2. Price of Substitute goods or services:
 Even consumer reduce buying one product
but they still need other product for satisfy
their need which we called indifference
Curse.
 For example :
Demand of Meal per week
No. Meal A Meal B
1 22 3
2 15 6
3 10 9
4 7 12
5 5 15
6 4 18
0
2
4
6
8
10
12
14
16
18
20
22 15 10 7 5 4
Meal B
Meal A

Topic II
Production

Course Outline
 Definition of production
 Elements/Factors of production
 Durations of production
 Optimum production

I. Introduction :
 Production are process of
transformation input into output.
 When we talking about production,
we need to think about :
 Factor of production
 Duration of production
 Opportunity Cost
 Cost of production

II. Factors of Production :
Factor of Production
Labor (L)
Capital (K)
Land, Raw material

III. Kinds of Production:
 Short-run production is a duration of
production that a Variable factor ,
Capital factor, unchanged.
 Long-run production is a duration of
production which enterprise Increase
or decrease product lead to fixed
production factor change.

IV. Problem of Production :
 Problem of Production are:
 How many Labor should be use?
 How many Capital should be use?
So, for answer all of above questions, we need to
understand about:
- Total production : is a total of product which
produced in a specific duration.
- Average production : is a average of product
which produced in a specific duration per labor.
- Marginal Production :is a change of product
when used additional factor.

1. Short- run production:
Capital (K) Labor (L) Total
Production
(TP)
Average
Productio
n
(AP)
Marginal
Production
(MP)
10 0 0 - -
10 1 15 15 15
10 2 34 17 19
10 3 48 16 14
10 4 60 15 12
10 5 62 12.4 2
TP
AP=
L
TP
MP=
L
Or
TP2-TP1
MP=
L2-L1

1. Short- run production:
Capital
(K)
Labor (L) Total
Production
(TP)
Average
Production
(AP)
Marginal
Production
(MP)
10 0 0 - -
10 1 15 15 15
10 2 34 17 19
10 3 48 16 14
10 4 60 15 12
10 5 62 12.4 2
0
10
20
30
40
50
60
70
0 2 4 6
TP
MP
AP

0
10
20
30
40
50
60
70
0 2 4 6
TP
MP
AP

2. Relation between MP and AP
 On the graph, we observe that :
 when MP > AP lead to increase AP and
vice versa.
 When we try to increase quantity of
labor on the fixed capital lead to
decrease productivity which we called
Law of Diminishing productivity.
 So, in short-run production, we can
decide to use labor at the point of AP
maximization.

3. Long- run production:
Method used for product 6 units of product in long-run
Method K L K L K/L
a 18 2 - - -
b 12 3 -6 1 -6
c 9 4 -3 1 -3
d 6 6 -3 2 -1.5
e 4 9 -2 3 -0.67
f 3 12 -1 3 -0.33
g 2 18 -1 6 -0.17

Depended on table, we see that there are 7 choice use for
produce 6 units of production which we called Isoquant, The graph
which stand for the same quantity by using different factor of
production. But we need to select one choice because of cost of
production which we called Isocost, The cost which stand for the
limited cost but can produce product needed.
So, in Long-run production we can decide to produce
unless Isoquant intersect with Isocost.
If we have 24$ of cost and Pk = 4$ and Pl= 1$. Where K
and L should be use for produce production.
The answer is K= 3 units and L = 12 Units.

Isoquant
Isocost
K
L
MPk Pk
=
MPl Pl

Topic III
Cost of Production

Course Outline
 Definition of cost of production
 Elements of cost of production
 Important of cost of production

I. Introduction :
 Cost of production is a main variable
which all suppliers need to consider
because its affect on :
 Price of Product
 Profit
 Competition
 Cost of Production almost depend on
factors of production used for produce
product.

II. Kinds of Cost of Production both
in short-run and Long-run :
 Total Cost is total all cost of Production.
 Total Variable Costs(TVC) are costs that variable
depend on quantity produced.
 Total fixed costs(TFC) are costs that fixed.
 Average variable cost(AVC) is total variable cost per
quantity unit.
 Average fixed cost(AFC) is total fixed cost per quantity
unit.
 Average total cost(ATC) is total cost per quantity
unit.
 Marginal cost(MC) is a change of total cost compare
with change of output.

Table-in Short-run
Q TVC TFC TC MC AVC AFC ATC
0 $0 $100 $100
1 60 $100 $160 60 60 $100 $160
2 100 $100 $200 40 50 $50 $100
3 125 $100 $225 25 41.67 $33 $75
4 140 $100 $240 15 35 $25 $60
5 170 $100 $270 30 34 $20 $54
6 200 $100 $300 30 33.33 $17 $50
7 240 $100 $340 40 34.29 $14 $49
8 290 $100 $390 50 36.25 $13 $49
9 350 $100 $450 60 38.89 $11 $50
10 420 $100 $520 70 42 $10 $52

0
20
40
60
80
100
120
140
160
180
1 2 3 4 5 6 7 8 9 10
MC
AVC
AFC
ATC

Table- in Long-Run
Quantity TC of Labor TC ofMachine
TC=TC1+TC
2 ATC
11 381 254 635 57.72727
12 390 260 650 54.16667
13 402 268 670 51.53846
14 420 280 700 50
15 450 300 750 50
16 480 320 800 50
17 510 340 850 50
18 549 366 915 50.83333
19 600 400 1000 52.63158
20 666 444 1110 55.5

Long-Run Production-Graph
ATC
49
50
51
52
53
54
55
56
57
58
59
0 5 10 15 20
ATC

LRP-Economy and Diseconomies of
Scale
 Economies of Scale are features of a
firm’s technology that lead to failing
long-run average cost as output
increase.
 Diseconomies of Scale are features of
a firm’s technology that lead to rising
long-run average cost as output
increase.
 Constant return to scale are features
of a firm’s technology that lead to

Economies of scale-Table
Quantity Price TR TC Profit ATC
0 20 0 12 -12
1 20 20 35 -15 35
2 20 40 56 -16 28
3 20 60 75 -15 25
4 20 80 90 -10 22.5
5 20 100 104 -4 20.8
6 20 120 116 4 19.33333
7 20 140 131 9 18.71429
8 20 160 150 10 18.75
9 20 180 173 7 19.22222
10 20 200 200 0 20
11 20 220 235 -15 21.36364
12 20 240 290 -50 24.16667
13 20 260 350 -90 26.92308

Topic IV
Pure or Perfect Competition

Course Outline
 Definition of pure or perfect
competition
 Characteristics of pure or perfect
competition
 Maximum profits of pure or perfect
competition

The Characteristics of Perfectly Competition Market
Price and output
Determination in
Perfect market
Free exit
And Entry
From firm
Perfect knowledge
And
Information
Price
Taker
A homogenous
Product
Very large
number
of
sellers
The
Characteristics

Key factor on Pure Competition
 Total Revenue : is total of revenue
after sale.
 Average Revenue : is a total revenue
per a output unit.
 Marginal Revenue : is a change of total
revenue compare with output.
 Profit maximization : Is a profit which
make maximize TR and Minimize TC
 Break-Even Point : Is a point that total
revenue equal total cost.

Key factor on Pure Competition-
Cont.
TR2-TR1
 MR =
Q2-Q1
TR
 AR =
Q
 Profit = TR - TC
 BEP : TR = TC
 TR = P*Q

Table of MR
P Qd TR MR
131 0 0
131 1 131 131
131 2 262 131
131 3 393 131
131 4 524 131
131 5 655 131
131 6 786 131
131 7 917 131
131 8 1048 131
131 9 1179 131
131 10 1310 131

Graph of MR
0
200
400
600
800
1000
1200
1400
0 5 10 15
TR
MR
Quantity

Profit maximization in Short
Run
Methods for creating Profit maximization
:
 Compare total revenue and Total cost
 Reduce Total Cost to minimization
 Compare Marginal Revenue and Marginal
Cost

Table for first method- Profit
Max.
Qd TR TFC TVC TC Profit
0 0 100 0 100 -100
1 131 100 90 190 -59
2 262 100 170 270 -8
3 393 100 240 340 53
4 524 100 300 400 124
5 655 100 370 470 185
6 786 100 450 550 236
7 917 100 540 640 277
8 1048 100 650 750 298
9 1179 100 780 880 299
10 1310 100 930 1030 280

Graph of first method- Profit
Max.
0
200
400
600
800
1000
1200
1400
0 5 10 15
TR
TC
Total Revenue
Total Cost
Break- Even point

Break-Even Point
 BEP : TR =TC
P*Q = TFC + TVC
P*Q = TFC + Q* Unit Variable Cost
(UVC)
P*Q-Q*UVC =TFC TC
Q(P – UVC) = TFC Q=
TFC P
BEP : Q =
P - UVC

Profit maximization- Reduce TC to minimization
P Q TR TFC TVC TC
Profit/los
s
81 0 0 100 0 100 -100
81 1 81 100 90 190 -109
81 2 162 100 170 270 -108
81 3 243 100 240 340 -97
81 4 324 100 300 400 -76
81 5 405 100 370 470 -65
81 6 486 100 450 550 -64
81 7 567 100 540 640 -73
81 8 648 100 650 750 -102
81 9 729 100 780 880 -151
81 10 810 100 930 1030 -220

Profit maximization- Closed-down Case
P Q TR TFC TVC TC
Profit/los
s
71 0 0 100 0 100 -100
71 1 71 100 90 190 -119
71 2 142 100 170 270 -128
71 3 213 100 240 340 -127
71 4 284 100 300 400 -116
71 5 355 100 370 470 -115
71 6 426 100 450 550 -124
71 7 497 100 540 640 -143
71 8 568 100 650 750 -182
71 9 639 100 780 880 -241
71 10 710 100 930 1030 -320

The third method for profit
maximization
 Conditions for profit maximization:
MC=MR=P and dMC/dQ >dMR/dQ
P Q TR MR TC MC P/L dMC dMR
131 0 0 100 -100
131 1 131 131 190 90 -59 90 131
131 2 262 131 270 80 -8 -10 0
131 3 393 131 340 70 53 -10 0
131 4 524 131 400 60 124 -10 0
131 5 655 131 470 70 185 10 0
131 6 786 131 550 80 236 10 0
131 7 917 131 640 90 277 10 0
131 8 1048 131 750 110 298 20 0
131 9 1179 131 880 130 299 20 0
131 10 1310 131 1030 150 280 20 0

Profit maximization in Long Run
 Demand
 Competitor
 Technology
 Cost

Graph
AC
MC
60
50
1000 1100
P
Quantit
y
0
40
Quanti
ty
D1
S
60
50
10001100
P
0
40
D2
When increase demand from D1 to D2 Cause:
- Production create Profit Attract new firm to entry
In Long Run Production when increase supply make Price of
Produce Decrease.

D1
S3
60
50
1000 1100
P
0
40
900 Quantity
D3
S1
When demand decrease
from D1 to D3 Cause:
-Production loss
- Exist some firms

P3 P2
P1
D3 D1 D2
P
50
900 1000 1100 Quantity
Long Run Supply Curves of constant TC industries are perfect Elastic.
When demand increase from D1 to D2 make output increase from Q1
= 1000 to Q2= 1100 Units But Market price is fixed.
When demand decrease from D1 to D3 make output decrease from
Q1 = 1000 to Q3= 900 Units But Market price is fixed.
Therefore, This curves is perfect Elastic.

Topic V
Imperfect Competition

Course Outline
 Definition of imperfect competition
 Characteristics of imperfect
competition
 Maximum profits of imperfect
competition

I. Introduction
 Imperfect Competition are a market
structure which not completed a or
more conditions of pergect
competition.
 Therefore Imperfect competition are
less different from perfect
Compection.

II. Kinds of Imperfect Competition:
Kinds of Imperfect
Competition
Monopoly Oligopoly

A. Monopoly
 Monopoly is a market structure in
which one firm make up the entire
market.
 This mean that market structure in
which the firm faces no competition
pressure from other firm.

A. Monopoly: Nature of Monopoly
Non-homogenous product
Imperfect Information
Barriers to entry
Price Maker
No Competition and Abnormal
Profit
Key
Concepts
in the
Competitive
Environment

A. Monopoly : Profit Maximization
 The profit maximization in monopoly
determined where the MC curve
intersects the MR curve.
MC
D
MR Quantity
P
Q
Price
Monopolist price
Competition price

A. Monopoly : Price setting in
monopoly
 A monopolist’s profit is determined by
the difference between ATC and price
as the following diagram.
MC
D
MR
Profit
ATC
Quantity
P
Q
Price
P>ATC

monopoly
 Profit in monopoly occur when P>ATC
 Zero profit when P = ATC
 Loss when P < ATC
MC
D
MR
ATC
Quantity
P
Q
Price
P<ATC
Loss

monopoly
 Profit in monopoly occur when P>ATC
 Zero profit when P = ATC
 Loss when P < ATC
MC
D
MR
ATC
Quantity
P
Q
Price
P = ATC
Zero
Profit

A. Monopoly : Product strategy
 For maintain position as monopoly, all
firm must consider about product
strategy which focus on product
differentiation.
 Product in marketing divided in two
kinds : one is Consumer product and
another one is Business product.

A. Monopoly : Monopolist
Competition
 Monopolist Competition are
combination of Monopoly and
Competition market.
 Monopolist competition must set price
and produce product at level of MR =
MC.

B. Oligopoly
 Oligopoly is a market structure in which
there are a few interdependent firms.
 In oligopoly, all firm using behavior
strategy for competition in market.
 Behavior strategy are strategies for
understanding of firm behavior
 There are two kinds of behavior strategy :
first is Game theory and second is
Conjectural variation.

III. Relationship of Market
structure
Monopoly Oligopoly
Monopolist
Competition
Perfect
Competition
Percent
Share
Of
The
market
Number of firm
One Few Many Infinite

Introduction of Microeconomic_CAPI.ppt

Introduction of Microeconomic_CAPI.ppt

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