Lecture 14

1. Microeconomics
Lecture 14
!
Market Structures
Perfect Competition

2. Key Terms
average revenue
marginal revenue
sunk cost

3. Breakeven

4. Breakeven
Where total revenue
equals total costs

5. Breakeven

6. Breakeven
FC = 1000

7. Breakeven
FC = 1000
VC = 30Q

8. Breakeven
FC = 1000
VC = 30Q
TC = FC + VC

9. Breakeven
FC = 1000
VC = 30Q
TC = FC + VC
TC = 1000 + 30Q

10. Breakeven
FC = 1000
VC = 30Q
TC = FC + VC
TC = 1000 + 30Q
P = 50

11. Breakeven
FC = 1000
VC = 30Q
TC = FC + VC
TC = 1000 + 30Q
P = 50
TR = P x Q

12. Breakeven
FC = 1000
VC = 30Q
TC = FC + VC
TC = 1000 + 30Q
P = 50
TR = P x Q
TR = 50Q

13. Breakeven
FC = 1000
VC = 30Q
TC = FC + VC
TC = 1000 + 30Q
P = 50
TR = P x Q
TR = 50Q
TR = TC

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. 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. 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. 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. 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. 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. Breakeven

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. Breakeven
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
0 10 20 30 40 50 60 70 80 90 100

23. Breakeven
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
Total Cost
0 10 20 30 40 50 60 70 80 90 100

24. Breakeven
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
Total Revenue
Total Cost
0 10 20 30 40 50 60 70 80 90 100

25. Breakeven
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
Total Revenue
Total Cost
0 10 20 30 40 50 60 70 80 90 100

26. Breakeven
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
Total Revenue
Total Cost
0 10 20 30 40 50 60 70 80 90 100

27. Breakeven
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
Total Revenue
Total Cost
0 10 20 30 40 50 60 70 80 90 100

28. Breakeven
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
Total Revenue
Total Cost
0 10 20 30 40 50 60 70 80 90 100

29. Breakeven
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
Total Revenue
Profit
Total Cost
0 10 20 30 40 50 60 70 80 90 100

30. Breakeven
5000
4500
4000
3500
3000
2500
2000
1500
1000
500
0
Total Revenue
Profit
Total Cost
Loss
0 10 20 30 40 50 60 70 80 90 100

31. The Four Market Structures

32. The Four Market Structures

33. The Four Market Structures

34. The Four Market Structures
Perfect
Competition

35. The Four Market Structures
Perfect
Competition
Monopoly

36. The Four Market Structures
Perfect
Competition
Monopoly
Monopolistic
Competition
Brand

37. The Four Market Structures
Perfect
Competition
Monopoly
Monopolistic
Competition
Brand
Oligopoly

38. The Four Market Structures
Perfect
Competition
Monopoly
Monopolistic
Competition
Brand
Oligopoly
Number of
Firms

39. The Four Market Structures
Perfect
Competition
Monopoly
Monopolistic
Competition
Brand
Oligopoly
Number of
Firms
Many

40. The Four Market Structures
Perfect
Competition
Monopoly
Monopolistic
Competition
Brand
Oligopoly
Number of
Firms
Many One

41. The Four Market Structures
Perfect
Competition
Monopoly
Monopolistic
Competition
Brand
Oligopoly
Number of
Firms
Many One Many

42. The Four Market Structures
Perfect
Competition
Monopoly
Monopolistic
Competition
Brand
Oligopoly
Number of
Firms
Many One Many Few

43. The Four Market Structures
Perfect
Competition
Monopoly
Monopolistic
Competition
Brand
Oligopoly
Number of
Firms
Many One Many Few
Type of
Product

44. The Four Market Structures
Perfect
Competition
Monopoly
Monopolistic
Competition
Brand
Oligopoly
Number of
Firms
Many One Many Few
Type of
Product
Identical

45. The Four Market Structures
Perfect
Competition
Monopoly
Monopolistic
Competition
Brand
Oligopoly
Number of
Firms
Many One Many Few
Type of
Product
Identical
Unique

46. The Four Market Structures
Perfect
Competition
Monopoly
Monopolistic
Competition
Brand
Oligopoly
Number of
Firms
Many One Many Few
Type of
Product
Identical
Unique Differentiated

47. The Four Market Structures
Perfect
Competition
Monopoly
Monopolistic
Competition
Brand
Oligopoly
Number of
Firms
Many One Many Few
Type of
Product
Identical
Unique Differentiated Either

48. The Four Market Structures
Perfect
Competition
Monopoly
Monopolistic
Competition
Brand
Oligopoly
Number of
Firms
Many One Many Few
Type of
Product
Identical
Unique Differentiated Either
Ease of
Entry

49. The Four Market Structures
Perfect
Competition
Monopoly
Monopolistic
Competition
Brand
Oligopoly
Number of
Firms
Many One Many Few
Type of
Product
Identical
Unique Differentiated Either
Ease of
Entry
Easy

50. The Four Market Structures
Perfect
Competition
Monopoly
Monopolistic
Competition
Brand
Oligopoly
Number of
Firms
Many One Many Few
Type of
Product
Identical
Unique Differentiated Either
Ease of
Entry
Easy Blocked

51. The Four Market Structures
Perfect
Competition
Monopoly
Monopolistic
Competition
Brand
Oligopoly
Number of
Firms
Many One Many Few
Type of
Product
Identical
Unique Differentiated Either
Ease of
Entry
Easy Blocked Easy

52. The Four Market Structures
Perfect
Competition
Monopoly
Monopolistic
Competition
Brand
Oligopoly
Number of
Firms
Many One Many Few
Type of
Product
Identical
Unique Differentiated Either
Ease of
Entry
Easy Blocked Easy Hard

53. The Four Market Structures
Perfect
Competition
Monopoly
Monopolistic
Competition
Brand
Oligopoly
Number of
Firms
Many One Many Few
Type of
Product
Identical
Unique Differentiated Either
Ease of
Entry
Easy Blocked Easy Hard
Examples

54. The Four Market Structures
Perfect
Competition
Monopoly
Monopolistic
Competition
Brand
Oligopoly
Number of
Firms
Many One Many Few
Type of
Product
Identical
Unique Differentiated Either
Ease of
Entry
Easy Blocked Easy Hard
Examples
Commodities
Carrots

55. The Four Market Structures
Perfect
Competition
Monopoly
Monopolistic
Competition
Brand
Oligopoly
Number of
Firms
Many One Many Few
Type of
Product
Identical
Unique Differentiated Either
Ease of
Entry
Easy Blocked Easy Hard
Examples
Commodities
Carrots
Government
Utilities

56. The Four Market Structures
Perfect
Competition
Monopoly
Monopolistic
Competition
Brand
Oligopoly
Number of
Firms
Many One Many Few
Type of
Product
Identical
Unique Differentiated Either
Ease of
Entry
Easy Blocked Easy Hard
Examples
Commodities
Carrots
Government
Utilities
Brands
Clothing
Restaurants

57. The Four Market Structures
Perfect
Competition
Monopoly
Monopolistic
Competition
Brand
Oligopoly
Number of
Firms
Many One Many Few
Type of
Product
Identical
Unique Differentiated Either
Ease of
Entry
Easy Blocked Easy Hard
Examples
Commodities
Carrots
Government
Utilities
Brands
Clothing
Restaurants
Manufacturing
Cars
Computers

66. ?

67. Market Power

68. Market Power
Few versus Many

69. Perfect Competition

70. Perfect Competition
Many buyers and
sellers
Similar Product
Easy Entry

71. Perfect Competition

72. Perfect Competition
Price is the same
because no one has
market power

73. Perfect Competition

74. Perfect Competition
No one has the
power to raise the
price or lower the
price

75. Perfect Competition

76. Perfect Competition
Price equals average
revenue equals
marginal revenue
All the same

77. Perfect Competition
Market

78. Perfect Competition
Market Individual

79. Perfect Competition
Market Individual
Price is flat
Does not change with output
Price = Marginal Revenue

81. Q
0
1
2
3
4
5
6
7
8
9
10

82. Q
0
1
2
3
4
5
6
7
8
9
10
Fixed
Cost
FC
100
100
100
100
100
100
100
100
100
100
100

83. Q
0
1
2
3
4
5
6
7
8
9
10
Fixed
Cost
FC
100
100
100
100
100
100
100
100
100
100
100
Variable
Cost
VC
20
39
59
84
120
160
212
270
340
420

84. Q
0
1
2
3
4
5
6
7
8
9
10
Fixed
Cost
FC
100
100
100
100
100
100
100
100
100
100
100
Variable
Cost
VC
20
39
59
84
120
160
212
270
340
420
Total
Cost
TC
FC +
VC
100
120
139
159
184
220
260
312
370
440
520

85. Q
0
1
2
3
4
5
6
7
8
9
10
Fixed
Cost
FC
100
100
100
100
100
100
100
100
100
100
100
Variable
Cost
VC
20
39
59
84
120
160
212
270
340
420
Total
Cost
TC
FC +
VC
100
120
139
159
184
220
260
312
370
440
520
Average
Total
Cost
ATC
TC ÷ Q
120.0
69.5
53.0
46.0
44.0
43.3
44.6
46.3
48.9
52.0

86. Q
0
1
2
3
4
5
6
7
8
9
10
Fixed
Cost
FC
100
100
100
100
100
100
100
100
100
100
100
Variable
Cost
VC
20
39
59
84
120
160
212
270
340
420
Total
Cost
TC
FC +
VC
100
120
139
159
184
220
260
312
370
440
520
Average
Total
Cost
ATC
TC ÷ Q
120.0
69.5
53.0
46.0
44.0
43.3
44.6
46.3
48.9
52.0
Marginal
Cost
MC
ΔTC ÷
ΔQ
20
19
20
25
36
40
52
58
70
80

87. Q
0
1
2
3
4
5
6
7
8
9
10
Fixed
Cost
FC
100
100
100
100
100
100
100
100
100
100
100
Variable
Cost
VC
20
39
59
84
120
160
212
270
340
420
Total
Cost
TC
FC +
VC
100
120
139
159
184
220
260
312
370
440
520
Average
Total
Cost
ATC
TC ÷ Q
120.0
69.5
53.0
46.0
44.0
43.3
44.6
46.3
48.9
52.0
Marginal
Cost
MC
ΔTC ÷
ΔQ
20
19
20
25
36
40
52
58
70
80
Price
P
50
50
50
50
50
50
50
50
50
50

88. Q
0
1
2
3
4
5
6
7
8
9
10
Fixed
Cost
FC
100
100
100
100
100
100
100
100
100
100
100
Variable
Cost
VC
20
39
59
84
120
160
212
270
340
420
Total
Cost
TC
FC +
VC
100
120
139
159
184
220
260
312
370
440
520
Average
Total
Cost
ATC
TC ÷ Q
120.0
69.5
53.0
46.0
44.0
43.3
44.6
46.3
48.9
52.0
Marginal
Cost
MC
ΔTC ÷
ΔQ
20
19
20
25
36
40
52
58
70
80
Price
P
50
50
50
50
50
50
50
50
50
50
Total
Revenue
TR
P x Q
50
100
150
200
250
300
350
400
450
500

89. Q
0
1
2
3
4
5
6
7
8
9
10
Fixed
Cost
FC
100
100
100
100
100
100
100
100
100
100
100
Variable
Cost
VC
20
39
59
84
120
160
212
270
340
420
Total
Cost
TC
FC +
VC
100
120
139
159
184
220
260
312
370
440
520
Average
Total
Cost
ATC
TC ÷ Q
120.0
69.5
53.0
46.0
44.0
43.3
44.6
46.3
48.9
52.0
Marginal
Cost
MC
ΔTC ÷
ΔQ
20
19
20
25
36
40
52
58
70
80
Price
P
50
50
50
50
50
50
50
50
50
50
Total
Revenue
TR
P x Q
50
100
150
200
250
300
350
400
450
500
Profit
PR
TR - TC
-70
-39
-9
16
30
40
38
30
10
-20

90. 100
90
80
70
60
50
40
30
20
10
0
1 2 3 4 5 6 7 8 9 10

91. 100
90
80
70
60
50
40
30
20
10
0
MC≤MR
Price = Average Revenue = Marginal Revenue
0 1 2 3 4 5 6 7 8 9 10
Are you
making
profit on
the next
unit?

92. Two Questions

93. Two Questions
1. How much quantity to produce?
!
!
2. How much profit?

94. Two Questions
1. How much quantity to produce?
MC= MR
!
!
Profit = TR - TC
= (Price x Q) - (ATC x Q)
!
!
2. How much profit?

95. Perfect Competition

96. Perfect Competition
$
Quantity

97. P
Perfect Competition
$
Quantity
Demand=MR

98. P
Perfect Competition
$
Quantity
Demand=MR
1. MR=MC?

99. P
Perfect Competition
Marginal Cost
MC
$
Quantity
Demand=MR
1. MR=MC?

100. P
Perfect Competition
Marginal Cost
MC
$
Quantity
Demand=MR
1. MR=MC?

101. Q
P
Perfect Competition
Marginal Cost
MC
$
Quantity
Demand=MR
1. MR=MC?

102. Q
P
Perfect Competition
Marginal Cost
MC
$
Quantity
Demand=MR
1. MR=MC?
2. TR= P x Q

103. Q
P
Perfect Competition
Marginal Cost
MC
$
Quantity
Demand=MR
1. MR=MC?
2. TR= P x Q
Total Revenue

104. Q
P
Perfect Competition
Marginal Cost
MC
$
Quantity
Demand=MR
1. MR=MC?
2. TR= P x Q
3. TC=ATC x Q
Total Revenue

105. Q
P
Perfect Competition
Marginal Cost
MC Average Cost
ATC
$
Quantity
Demand=MR
1. MR=MC?
2. TR= P x Q
3. TC=ATC x Q
Total Revenue

106. Q
P
Perfect Competition
Marginal Cost
MC Average Cost
ATC
$
Quantity
Demand=MR
1. MR=MC?
2. TR= P x Q
3. TC=ATC x Q
Total Revenue

107. Q
P
Perfect Competition
Marginal Cost
MC Average Cost
ATC
$
Quantity
Demand=MR
1. MR=MC?
2. TR= P x Q
3. TC=ATC x Q
Total Revenue

108. Q
P
Perfect Competition
Marginal Cost
MC Average Cost
ATC
Total Cost
$
Quantity
Demand=MR
1. MR=MC?
2. TR= P x Q
3. TC=ATC x Q

109. Q
P
Perfect Competition
Marginal Cost
MC Average Cost
ATC
Total Cost
$
Quantity
Demand=MR
1. MR=MC?
2. TR= P x Q
3. TC=ATC x Q
4. Profit =TR-TC
or (P-ATC) x Q

110. Q
P
Perfect Competition
Marginal Cost
MC Average Cost
ATC
Profit
Total Cost
$
Quantity
Demand=MR
1. MR=MC?
2. TR= P x Q
3. TC=ATC x Q
4. Profit =TR-TC
or (P-ATC) x Q

111. P
Perfect Competition
$
Quantity
Demand=MR

112. P
Perfect Competition
$
Quantity
Demand=MR
1. MR=MC?

113. P
Perfect Competition
Marginal Cost
MC
$
Quantity
Demand=MR
1. MR=MC?

114. P
Perfect Competition
Marginal Cost
MC
$
Quantity
Demand=MR
1. MR=MC?

115. Q
P
Perfect Competition
Marginal Cost
MC
$
Quantity
Demand=MR
1. MR=MC?

116. Q
P
Perfect Competition
Marginal Cost
MC
$
Quantity
Demand=MR
1. MR=MC?
2. TR= P x Q

117. Q
P
Perfect Competition
Marginal Cost
MC
$
Quantity
Demand=MR
1. MR=MC?
Total Revenue 2. TR= P x Q

118. Q
P
Perfect Competition
Marginal Cost
MC
$
Quantity
Demand=MR
1. MR=MC?
2. TR= P x Q
3. TC=ATC x Q
Total Revenue

119. Q
P
Perfect Competition
Marginal Cost
MC Average Cost
ATC
$
Quantity
Demand=MR
1. MR=MC?
2. TR= P x Q
3. TC=ATC x Q
Total Revenue

120. Q
P
Perfect Competition
Marginal Cost
MC Average Cost
ATC
$
Quantity
Demand=MR
1. MR=MC?
2. TR= P x Q
3. TC=ATC x Q
Total Revenue

121. Q
P
Perfect Competition
Marginal Cost
MC Average Cost
ATC
$
Quantity
Demand=MR
1. MR=MC?
2. TR= P x Q
3. TC=ATC x Q
Total Revenue

122. Q
P
Perfect Competition
Marginal Cost
MC Average Cost
ATC
Total Cost
$
Quantity
Demand=MR
1. MR=MC?
2. TR= P x Q
3. TC=ATC x Q

123. Q
P
Perfect Competition
Marginal Cost
MC Average Cost
ATC
Total Cost
$
Quantity
Demand=MR
1. MR=MC?
2. TR= P x Q
3. TC=ATC x Q
4. Profit =TR-TC
or (P-ATC) x Q

124. Q
P
Perfect Competition
Marginal Cost
MC Average Cost
ATC
Profit
Total Cost
$
Quantity
Demand=MR
1. MR=MC?
2. TR= P x Q
3. TC=ATC x Q
4. Profit =TR-TC
or (P-ATC) x Q

125. Perfect Competition

126. Perfect Competition
$
Quantity

127. P
Perfect Competition
$
Quantity
Demand=MR

128. P
Perfect Competition
$
Quantity
Demand=MR
1. MR=MC?

129. P
Perfect Competition
Marginal Cost
MC
$
Quantity
Demand=MR
1. MR=MC?

130. P
Perfect Competition
Marginal Cost
MC
$
Quantity
Demand=MR
1. MR=MC?

131. Q
P
Perfect Competition
Marginal Cost
MC
$
Quantity
Demand=MR
1. MR=MC?

132. Q
P
Perfect Competition
Marginal Cost
MC
$
Quantity
Demand=MR
1. MR=MC?
2. TR= P x Q

133. Q
P
Perfect Competition
Marginal Cost
MC
$
Quantity
Demand=MR
1. MR=MC?
2. TR= P x Q
Total Revenue

134. Q
P
Perfect Competition
Marginal Cost
MC
$
Quantity
Demand=MR
1. MR=MC?
2. TR= P x Q
3. TC=ATC x Q
Total Revenue

135. Q
P
Perfect Competition
Marginal Cost
MC Average Cost
ATC
$
Quantity
Demand=MR
1. MR=MC?
2. TR= P x Q
3. TC=ATC x Q
Total Revenue

136. Q
P
Perfect Competition
Marginal Cost
MC Average Cost
ATC
$
Quantity
Demand=MR
1. MR=MC?
2. TR= P x Q
3. TC=ATC x Q
Total Revenue

137. Q
P
Perfect Competition
Marginal Cost
MC Average Cost
ATC
$
Quantity
Demand=MR
1. MR=MC?
2. TR= P x Q
3. TC=ATC x Q
Total Revenue

138. Q
P
Perfect Competition
Marginal Cost
MC Average Cost
ATC
Total Cost
$
Quantity
Demand=MR
1. MR=MC?
2. TR= P x Q
3. TC=ATC x Q

139. Q
P
Perfect Competition
Marginal Cost
MC Average Cost
ATC
Loss
Total Cost
$
Quantity
Demand=MR
1. MR=MC?
2. TR= P x Q
3. TC=ATC x Q
4. Profit =TR-TC
or (P-ATC) x Q