101 lecture 14

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101 lecture 14

  1. 1. Microeconomics Lecture 14 ! Market Structures Perfect Competition
  2. 2. Key Terms average revenue marginal revenue sunk cost
  3. 3. Breakeven
  4. 4. Breakeven Where total revenue equals total costs
  5. 5. Breakeven
  6. 6. Breakeven FC = 1000
  7. 7. Breakeven FC = 1000 VC = 30Q
  8. 8. Breakeven FC = 1000 VC = 30Q TC = FC + VC
  9. 9. Breakeven FC = 1000 VC = 30Q TC = FC + VC TC = 1000 + 30Q
  10. 10. Breakeven FC = 1000 VC = 30Q TC = FC + VC TC = 1000 + 30Q P = 50
  11. 11. Breakeven FC = 1000 VC = 30Q TC = FC + VC TC = 1000 + 30Q P = 50 TR = P x Q
  12. 12. Breakeven FC = 1000 VC = 30Q TC = FC + VC TC = 1000 + 30Q P = 50 TR = P x Q TR = 50Q
  13. 13. Breakeven FC = 1000 VC = 30Q TC = FC + VC TC = 1000 + 30Q P = 50 TR = P x Q TR = 50Q TR = TC
  14. 14. Breakeven FC = 1000 VC = 30Q TC = FC + VC TC = 1000 + 30Q P = 50 TR = P x Q TR = 50Q TR = TC 50Q = 1000 + 30Q
  15. 15. Breakeven FC = 1000 VC = 30Q TC = FC + VC TC = 1000 + 30Q P = 50 TR = P x Q TR = 50Q TR = TC 50Q = 1000 + 30Q 20Q = 1000
  16. 16. Breakeven FC = 1000 VC = 30Q TC = FC + VC TC = 1000 + 30Q P = 50 TR = P x Q TR = 50Q TR = TC 50Q = 1000 + 30Q 20Q = 1000 Q = 50
  17. 17. Breakeven FC = 1000 VC = 30Q TC = FC + VC TC = 1000 + 30Q P = 50 TR = P x Q TR = 50Q TR = TC 50Q = 1000 + 30Q 20Q = 1000 Q = 50 5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 0 10 20 30 40 50 60 70 80 90 100
  18. 18. Breakeven FC = 1000 VC = 30Q TC = FC + VC TC = 1000 + 30Q P = 50 TR = P x Q TR = 50Q TR = TC 50Q = 1000 + 30Q 20Q = 1000 Q = 50 5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 0 10 20 30 40 50 60 70 80 90 100
  19. 19. Breakeven FC = 1000 VC = 30Q TC = FC + VC TC = 1000 + 30Q P = 50 TR = P x Q TR = 50Q TR = TC 50Q = 1000 + 30Q 20Q = 1000 Q = 50 5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 0 10 20 30 40 50 60 70 80 90 100
  20. 20. Breakeven
  21. 21. Breakeven 5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 0 10 20 30 40 50 60 70 80 90 100
  22. 22. Breakeven 5000 4500 4000 3500 3000 2500 2000 1500 1000 500 0 0 10 20 30 40 50 60 70 80 90 100
  23. 23. Breakeven 5000 4500 4000 3500 3000 Total Cost 2500 2000 1500 1000 500 0 0 10 20 30 40 50 60 70 80 90 100
  24. 24. Breakeven 5000 4500 Total Revenue 4000 3500 3000 Total Cost 2500 2000 1500 1000 500 0 0 10 20 30 40 50 60 70 80 90 100
  25. 25. Breakeven 5000 4500 Total Revenue 4000 3500 3000 Total Cost 2500 2000 1500 1000 500 0 0 10 20 30 40 50 60 70 80 90 100
  26. 26. Breakeven 5000 4500 Total Revenue 4000 3500 3000 Total Cost 2500 2000 1500 1000 500 0 0 10 20 30 40 50 60 70 80 90 100
  27. 27. Breakeven 5000 4500 Total Revenue 4000 3500 3000 Total Cost 2500 2000 1500 1000 500 0 0 10 20 30 40 50 60 70 80 90 100
  28. 28. Breakeven 5000 4500 Total Revenue 4000 3500 3000 Total Cost 2500 2000 1500 1000 500 0 0 10 20 30 40 50 60 70 80 90 100
  29. 29. Breakeven 5000 4500 Total Revenue Profit 4000 3500 3000 Total Cost 2500 2000 1500 1000 500 0 0 10 20 30 40 50 60 70 80 90 100
  30. 30. Breakeven 5000 4500 Total Revenue Profit 4000 3500 3000 Total Cost 2500 2000 1500 Loss 1000 500 0 0 10 20 30 40 50 60 70 80 90 100
  31. 31. The Four Market Structures
  32. 32. The Four Market Structures
  33. 33. The Four Market Structures
  34. 34. The Four Market Structures Perfect Competition
  35. 35. The Four Market Structures Perfect Competition Monopoly
  36. 36. The Four Market Structures Perfect Competition Monopoly Monopolistic Competition Brand
  37. 37. The Four Market Structures Perfect Competition Monopoly Monopolistic Competition Brand Oligopoly
  38. 38. The Four Market Structures Perfect Competition Number of Firms Monopoly Monopolistic Competition Brand Oligopoly
  39. 39. The Four Market Structures Perfect Competition Number of Firms Many Monopoly Monopolistic Competition Brand Oligopoly
  40. 40. The Four Market Structures Perfect Competition Number of Firms Monopoly Many One Monopolistic Competition Brand Oligopoly
  41. 41. The Four Market Structures Perfect Competition Number of Firms Monopoly Monopolistic Competition Brand Many One Many Oligopoly
  42. 42. The Four Market Structures Perfect Competition Number of Firms Many Monopoly Monopolistic Competition Brand Oligopoly One Many Few
  43. 43. The Four Market Structures Perfect Competition Number of Firms Type of Product Many Monopoly Monopolistic Competition Brand Oligopoly One Many Few
  44. 44. The Four Market Structures Perfect Competition Number of Firms Many Type of Product Identical Monopoly Monopolistic Competition Brand Oligopoly One Many Few
  45. 45. The Four Market Structures Monopoly Monopolistic Competition Brand Oligopoly Many One Many Few Identical Unique Perfect Competition Number of Firms Type of Product
  46. 46. The Four Market Structures Monopoly Monopolistic Competition Brand Oligopoly Many One Many Few Identical Unique Differentiated Perfect Competition Number of Firms Type of Product
  47. 47. The Four Market Structures Monopoly Monopolistic Competition Brand Oligopoly Many One Many Few Identical Unique Differentiated Either Perfect Competition Number of Firms Type of Product
  48. 48. The Four Market Structures Monopoly Monopolistic Competition Brand Oligopoly Many One Many Few Identical Unique Differentiated Either Perfect Competition Number of Firms Type of Product Ease of Entry
  49. 49. The Four Market Structures Monopoly Monopolistic Competition Brand Oligopoly Many One Many Few Type of Product Identical Unique Differentiated Either Ease of Entry Easy Perfect Competition Number of Firms
  50. 50. The Four Market Structures Monopoly Monopolistic Competition Brand Oligopoly Many One Many Few Type of Product Identical Unique Differentiated Either Ease of Entry Easy Blocked Perfect Competition Number of Firms
  51. 51. The Four Market Structures Monopoly Monopolistic Competition Brand Oligopoly Many One Many Few Type of Product Identical Unique Differentiated Either Ease of Entry Easy Blocked Easy Perfect Competition Number of Firms
  52. 52. The Four Market Structures Monopoly Monopolistic Competition Brand Oligopoly Many One Many Few Type of Product Identical Unique Differentiated Either Ease of Entry Easy Blocked Easy Hard Perfect Competition Number of Firms
  53. 53. The Four Market Structures Monopoly Monopolistic Competition Brand Oligopoly Many One Many Few Type of Product Identical Unique Differentiated Either Ease of Entry Easy Blocked Easy Hard Perfect Competition Number of Firms Examples
  54. 54. The Four Market Structures Monopoly Monopolistic Competition Brand Oligopoly Many One Many Few Type of Product Identical Unique Differentiated Either Ease of Entry Easy Blocked Easy Hard Examples Commodities Rice Perfect Competition Number of Firms
  55. 55. The Four Market Structures Monopoly Monopolistic Competition Brand Oligopoly Many One Many Few Type of Product Identical Unique Differentiated Either Ease of Entry Easy Blocked Easy Hard Examples Commodities Rice Government Utilities Perfect Competition Number of Firms
  56. 56. The Four Market Structures Monopoly Monopolistic Competition Brand Oligopoly Many One Many Few Type of Product Identical Unique Differentiated Either Ease of Entry Easy Blocked Easy Hard Government Utilities Brands Clothing Restaurants Perfect Competition Number of Firms Examples Commodities Rice
  57. 57. The Four Market Structures Monopoly Monopolistic Competition Brand Oligopoly Many One Many Few Type of Product Identical Unique Differentiated Either Ease of Entry Easy Blocked Easy Hard Government Utilities Brands Clothing Restaurants Manufacturing Cars Computers Perfect Competition Number of Firms Examples Commodities Rice
  58. 58. Market Power
  59. 59. Market Power Few versus Many
  60. 60. Perfect Competition
  61. 61. Perfect Competition Many buyers and sellers Similar Product Easy Entry
  62. 62. Perfect Competition
  63. 63. Perfect Competition Price is the same because no one has market power
  64. 64. Perfect Competition
  65. 65. Perfect Competition No one has the power to raise the price or lower the price
  66. 66. Perfect Competition
  67. 67. Perfect Competition Price equals average revenue equals marginal revenue All the same
  68. 68. Perfect Competition Market
  69. 69. Perfect Competition Market Individual
  70. 70. Perfect Competition Market Individual Price is flat Does not change with output Price = Marginal Revenue
  71. 71. Q 0 1 2 3 4 5 6 7 8 9 10
  72. 72. Fixed Cost Q FC 0 100 1 100 2 100 3 100 4 100 5 100 6 100 7 100 8 100 9 100 10 100
  73. 73. Fixed Variable Cost Cost Q FC VC 0 100 1 100 20 2 100 39 3 100 59 4 100 84 5 100 120 6 100 160 7 100 212 8 100 270 9 100 340 10 100 420
  74. 74. Total Cost Fixed Variable TC Cost Cost FC + Q FC VC VC 0 100 100 1 100 20 120 2 100 39 139 3 100 59 159 4 100 84 184 5 100 120 220 6 100 160 260 7 100 212 312 8 100 270 370 9 100 340 440 10 100 420 520
  75. 75. Total Average Cost Total Fixed Variable TC Cost Cost Cost FC + ATC Q FC VC VC TC ÷ Q 0 100 100 1 100 20 120 120.0 2 100 39 139 69.5 3 100 59 159 53.0 4 100 84 184 46.0 5 100 120 220 44.0 6 100 160 260 43.3 7 100 212 312 44.6 8 100 270 370 46.3 9 100 340 440 48.9 10 100 420 520 52.0
  76. 76. Total Average Marginal Cost Total Cost Fixed Variable TC Cost MC Cost Cost FC + ATC ∆TC ÷ Q FC VC VC TC ÷ Q ∆Q 0 100 100 1 100 20 120 120.0 20 2 100 39 139 69.5 19 3 100 59 159 53.0 20 4 100 84 184 46.0 25 5 100 120 220 44.0 36 6 100 160 260 43.3 40 7 100 212 312 44.6 52 8 100 270 370 46.3 58 9 100 340 440 48.9 70 10 100 420 520 52.0 80
  77. 77. Total Average Marginal Cost Total Cost Fixed Variable TC Cost MC Cost Cost FC + ATC ∆TC ÷ Price Q FC VC VC TC ÷ Q ∆Q P 0 100 100 1 100 20 120 120.0 20 50 2 100 39 139 69.5 19 50 3 100 59 159 53.0 20 50 4 100 84 184 46.0 25 50 5 100 120 220 44.0 36 50 6 100 160 260 43.3 40 50 7 100 212 312 44.6 52 50 8 100 270 370 46.3 58 50 9 100 340 440 48.9 70 50 10 100 420 520 52.0 80 50
  78. 78. Total Average Marginal Cost Total Cost Total Fixed Variable TC Cost MC Revenue Cost Cost FC + ATC ∆TC ÷ Price TR Q FC VC VC TC ÷ Q ∆Q P PxQ 0 100 100 1 100 20 120 120.0 20 50 50 2 100 39 139 69.5 19 50 100 3 100 59 159 53.0 20 50 150 4 100 84 184 46.0 25 50 200 5 100 120 220 44.0 36 50 250 6 100 160 260 43.3 40 50 300 7 100 212 312 44.6 52 50 350 8 100 270 370 46.3 58 50 400 9 100 340 440 48.9 70 50 450 10 100 420 520 52.0 80 50 500
  79. 79. Total Average Marginal Cost Total Cost Total Fixed Variable TC Cost MC Revenue Profit Cost Cost FC + ATC ∆TC ÷ Price TR PR Q FC VC VC TC ÷ Q ∆Q P P x Q TR - TC 0 100 100 1 100 20 120 120.0 20 50 50 -70 2 100 39 139 69.5 19 50 100 -39 3 100 59 159 53.0 20 50 150 -9 4 100 84 184 46.0 25 50 200 16 5 100 120 220 44.0 36 50 250 30 6 100 160 260 43.3 40 50 300 40 7 100 212 312 44.6 52 50 350 38 8 100 270 370 46.3 58 50 400 30 9 100 340 440 48.9 70 50 450 10 10 100 420 520 52.0 80 50 500 -20
  80. 80. 100 90 80 70 60 50 40 30 20 10 0 1 2 3 4 5 6 7 8 9 10
  81. 81. MC≤MR 100 Are you making profit on the next unit? 90 80 Price = Average Revenue = Marginal Revenue 70 60 50 40 30 20 10 0 0 1 2 3 4 5 6 7 8 9 10
  82. 82. Two Questions
  83. 83. Two Questions 1. How much quantity to produce? ! ! 2. How much profit?
  84. 84. Two Questions 1. How much quantity to produce? ! ! MC= MR ! 2. How much profit? ! Profit = TR - TC = (Price x Q) - (ATC x Q)
  85. 85. Perfect Competition
  86. 86. Perfect Competition $ Quantity
  87. 87. Perfect Competition $ P Demand=MR Quantity
  88. 88. Perfect Competition $ P Demand=MR 1. MR=MC? Quantity
  89. 89. Perfect Competition $ Marginal Cost MC P Demand=MR 1. MR=MC? Quantity
  90. 90. Perfect Competition $ Marginal Cost MC P Demand=MR 1. MR=MC? Quantity
  91. 91. Perfect Competition $ Marginal Cost MC P Demand=MR 1. MR=MC? Quantity Q
  92. 92. Perfect Competition $ Marginal Cost MC P Demand=MR 1. MR=MC? 2. TR= P x Q Quantity Q
  93. 93. Perfect Competition $ Marginal Cost MC P Demand=MR 1. MR=MC? 2. TR= P x Q Total Revenue Quantity Q
  94. 94. Perfect Competition $ Marginal Cost MC P Demand=MR 1. MR=MC? 2. TR= P x Q 3. TC=ATC x Q Total Revenue Quantity Q
  95. 95. Perfect Competition $ Marginal Cost Average Cost MC ATC P Demand=MR 1. MR=MC? 2. TR= P x Q 3. TC=ATC x Q Total Revenue Quantity Q
  96. 96. Perfect Competition $ Marginal Cost Average Cost MC ATC P Demand=MR 1. MR=MC? 2. TR= P x Q 3. TC=ATC x Q Total Revenue Quantity Q
  97. 97. Perfect Competition $ Marginal Cost Average Cost MC ATC P Demand=MR 1. MR=MC? 2. TR= P x Q 3. TC=ATC x Q Total Revenue Quantity Q
  98. 98. Perfect Competition $ Marginal Cost Average Cost MC ATC P Demand=MR 1. MR=MC? 2. TR= P x Q 3. TC=ATC x Q Total Cost Quantity Q
  99. 99. Perfect Competition $ Marginal Cost Average Cost MC ATC P Demand=MR Total Cost Quantity Q 1. MR=MC? 2. TR= P x Q 3. TC=ATC x Q 4. Profit =TR-TC or (P-ATC) x Q
  100. 100. Perfect Competition $ Marginal Cost Average Cost MC ATC P Demand=MR Profit Total Cost Quantity Q 1. MR=MC? 2. TR= P x Q 3. TC=ATC x Q 4. Profit =TR-TC or (P-ATC) x Q
  101. 101. Perfect Competition $ P Demand=MR Quantity
  102. 102. Perfect Competition $ P Demand=MR 1. MR=MC? Quantity
  103. 103. Perfect Competition $ Marginal Cost MC P Demand=MR 1. MR=MC? Quantity
  104. 104. Perfect Competition $ Marginal Cost MC P Demand=MR 1. MR=MC? Quantity
  105. 105. Perfect Competition $ Marginal Cost MC P Demand=MR 1. MR=MC? Quantity Q
  106. 106. Perfect Competition $ Marginal Cost MC P Demand=MR 1. MR=MC? 2. TR= P x Q Quantity Q
  107. 107. Perfect Competition $ Marginal Cost MC P Demand=MR 1. MR=MC? 2. TR= P x Q Total Revenue Quantity Q
  108. 108. Perfect Competition $ Marginal Cost MC P Demand=MR 1. MR=MC? 2. TR= P x Q 3. TC=ATC x Q Total Revenue Quantity Q
  109. 109. Perfect Competition $ Marginal Cost Average Cost MC ATC P Demand=MR 1. MR=MC? 2. TR= P x Q 3. TC=ATC x Q Total Revenue Quantity Q
  110. 110. Perfect Competition $ Marginal Cost Average Cost MC ATC P Demand=MR 1. MR=MC? 2. TR= P x Q 3. TC=ATC x Q Total Revenue Quantity Q
  111. 111. Perfect Competition $ Marginal Cost Average Cost MC ATC P Demand=MR 1. MR=MC? 2. TR= P x Q 3. TC=ATC x Q Total Revenue Quantity Q
  112. 112. Perfect Competition $ Marginal Cost Average Cost MC ATC P Demand=MR 1. MR=MC? 2. TR= P x Q 3. TC=ATC x Q Total Cost Quantity Q
  113. 113. Perfect Competition $ Marginal Cost Average Cost MC ATC P Demand=MR Total Cost Quantity Q 1. MR=MC? 2. TR= P x Q 3. TC=ATC x Q 4. Profit =TR-TC or (P-ATC) x Q
  114. 114. Perfect Competition $ Marginal Cost Average Cost MC ATC P Demand=MR Profit Total Cost Quantity Q 1. MR=MC? 2. TR= P x Q 3. TC=ATC x Q 4. Profit =TR-TC or (P-ATC) x Q
  115. 115. Perfect Competition
  116. 116. Perfect Competition $ Quantity
  117. 117. Perfect Competition $ P Demand=MR Quantity
  118. 118. Perfect Competition $ P Demand=MR 1. MR=MC? Quantity
  119. 119. Perfect Competition $ Marginal Cost MC P Demand=MR 1. MR=MC? Quantity
  120. 120. Perfect Competition $ Marginal Cost MC P Demand=MR 1. MR=MC? Quantity
  121. 121. Perfect Competition $ Marginal Cost MC P Demand=MR 1. MR=MC? Quantity Q
  122. 122. Perfect Competition $ Marginal Cost MC P Demand=MR 1. MR=MC? 2. TR= P x Q Quantity Q
  123. 123. Perfect Competition $ Marginal Cost MC P Demand=MR 1. MR=MC? 2. TR= P x Q Total Revenue Quantity Q
  124. 124. Perfect Competition $ Marginal Cost MC P Demand=MR 1. MR=MC? 2. TR= P x Q 3. TC=ATC x Q Total Revenue Quantity Q
  125. 125. Perfect Competition $ Marginal Cost MC Average Cost ATC P Demand=MR 1. MR=MC? 2. TR= P x Q 3. TC=ATC x Q Total Revenue Quantity Q
  126. 126. Perfect Competition $ Marginal Cost MC Average Cost ATC P Demand=MR 1. MR=MC? 2. TR= P x Q 3. TC=ATC x Q Total Revenue Quantity Q
  127. 127. Perfect Competition $ Marginal Cost MC Average Cost ATC P Demand=MR 1. MR=MC? 2. TR= P x Q 3. TC=ATC x Q Total Revenue Quantity Q
  128. 128. Perfect Competition $ Marginal Cost MC Average Cost ATC P Demand=MR 1. MR=MC? 2. TR= P x Q 3. TC=ATC x Q Total Cost Quantity Q
  129. 129. Perfect Competition $ P Marginal Cost MC Average Cost ATC Loss Demand=MR Total Cost Quantity Q 1. MR=MC? 2. TR= P x Q 3. TC=ATC x Q 4. Profit =TR-TC or (P-ATC) x Q

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