The document discusses key concepts regarding firms in competitive markets, including:
1) A competitive firm is a price taker and aims to maximize profits by producing where marginal revenue equals marginal cost. The portion of the marginal cost curve above average variable cost represents the firm's short-run supply curve.
2) In the long-run, firms will enter or exit the market until price equals minimum average total cost and profits are driven to zero. The portion of the marginal cost curve above average total cost represents the firm's long-run supply curve.
3) Market supply is determined by the summed individual firm supply curves. In the long-run, entry and exit of firms leads to a horizontal market supply curve
The cost of production/Chapter 7(pindyck)RAHUL SINHA
content
•MEASURING COST: WHICH COSTS MATTER?
•Fixed and variable cost
•Fixed versus sunk cost
•Amortizing Sunk Costs
•Marginal cost
•Average cost
•Determinants of short run cost
•Diminishing marginal returns
•The shapes of cost curves
•The Average–Marginal Relationship
•Costs in a long run
•Cost minimizing input choices
•Isocost lines
•Marginal rate of technical substitution
•Expansion path
•The Inflexibility of Short-Run Production
•Long run average cost
•Economies and Diseconomies of Scale
•The Relationship Between Short-Run and Long-Run Cost
•Break even analysis
Limit Pricing content slideshow. Designed for the Economic A level qualification. Can be used in revision and in class.
Subtopics
Intro to Limit Pricing
Spotting & Evaluating Limit Pricing
All the three methods of national income accounting are explained with mathematical questions and answers. It is very helpful for the NCERT and SCERT plus two commerce and humanities students who have to learn these methods in the second chapter of macroeconomics.
Intermediate Microeconomic Theory Midterm 2 "Cheat Sheet"Laurel Ayuyao
For Intermediate Microeconomic Theory (ECON 30010) at University of Notre Dame. Topics include demand, elasticity, income and substitution effects, compensating and equivalent variation, intertemporal choice, uncertainty, and preferences over risk.
The cost of production/Chapter 7(pindyck)RAHUL SINHA
content
•MEASURING COST: WHICH COSTS MATTER?
•Fixed and variable cost
•Fixed versus sunk cost
•Amortizing Sunk Costs
•Marginal cost
•Average cost
•Determinants of short run cost
•Diminishing marginal returns
•The shapes of cost curves
•The Average–Marginal Relationship
•Costs in a long run
•Cost minimizing input choices
•Isocost lines
•Marginal rate of technical substitution
•Expansion path
•The Inflexibility of Short-Run Production
•Long run average cost
•Economies and Diseconomies of Scale
•The Relationship Between Short-Run and Long-Run Cost
•Break even analysis
Limit Pricing content slideshow. Designed for the Economic A level qualification. Can be used in revision and in class.
Subtopics
Intro to Limit Pricing
Spotting & Evaluating Limit Pricing
All the three methods of national income accounting are explained with mathematical questions and answers. It is very helpful for the NCERT and SCERT plus two commerce and humanities students who have to learn these methods in the second chapter of macroeconomics.
Intermediate Microeconomic Theory Midterm 2 "Cheat Sheet"Laurel Ayuyao
For Intermediate Microeconomic Theory (ECON 30010) at University of Notre Dame. Topics include demand, elasticity, income and substitution effects, compensating and equivalent variation, intertemporal choice, uncertainty, and preferences over risk.
The interconnected characteristics of a market, such as the number and relative strength of buyers and sellers and degree of collusion among them, level and forms of competition, extent of product differentiation, and ease of entry into and exit from the market.Four basic types of market structure are (1) Perfect competition: many buyers and sellers, none being able to influence prices. (2) Oligopoly: several large sellers who have some control over the prices. (3) Monopoly: single seller with considerable control over supply and prices. (4) Monopsony: single buyer with considerable control over demand and prices.
Similar to 12 Firms in Competitive Markets.pptx (20)
how to swap pi coins to foreign currency withdrawable.DOT TECH
As of my last update, Pi is still in the testing phase and is not tradable on any exchanges.
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USDA Loans in California: A Comprehensive Overview.pptxmarketing367770
USDA Loans in California: A Comprehensive Overview
If you're dreaming of owning a home in California's rural or suburban areas, a USDA loan might be the perfect solution. The U.S. Department of Agriculture (USDA) offers these loans to help low-to-moderate-income individuals and families achieve homeownership.
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Well as we all know pi isn't launched yet. But you can still sell your pi coins effortlessly because some whales in China are interested in holding massive pi coins. And they are willing to pay good money for it. If you are interested in selling I will leave a contact for you. Just telegram this number below. I sold about 3000 pi coins to him and he paid me immediately.
Telegram: @Pi_vendor_247
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There is no set date for when Pi coins will enter the market.
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Once they are available, users will be able to exchange other cryptocurrencies for Pi coins on designated exchanges.
But for now the only way to sell your pi coins is through verified pi vendor.
Here is the telegram contact of my personal pi vendor
@Pi_vendor_247
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Even tho Pi network is not listed on any exchange yet.
Buying/Selling or investing in pi network coins is highly possible through the help of vendors. You can buy from vendors[ buy directly from the pi network miners and resell it]. I will leave the telegram contact of my personal vendor.
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2. The Meaning of Competition
A perfectly competitive market has
the following characteristics:
There are many buyers and sellers in the
market.
The goods offered by the various sellers
are largely the same.
Firms can freely enter or exit the market.
3. The Meaning of Competition
As a result of its characteristics, the perfectly competitive market has
the following outcomes:
The actions of any single buyer or seller
in the market have a negligible impact
on the market price.
Each buyer and seller takes the market
price as given.
4. The Meaning of Competition
Buyers and sellers in competitive
markets are said to be price takers.
Buyers and sellers must accept the price
determined by the market.
5. Revenue of a Competitive Firm
Total revenue for a firm is the selling
price times the quantity sold.
TR = (P X Q)
6. Revenue of a Competitive Firm
Total revenue is proportional to the
amount of output.
7. Revenue of a Competitive Firm
Average revenue tells us how much
revenue a firm receives for the
typical unit sold.
8. Revenue of a Competitive Firm
In perfect competition, average
revenue equals the price of the
good.
Average revenue =
Total revenue
Quantity
=
(Price Quantity)
Quantity
= Price
9. Revenue of a Competitive Firm
Marginal revenue is the change in
total revenue from an additional
unit sold.
MR =TR/ Q
10. Revenue of a Competitive Firm
For competitive firms, marginal
revenue equals the price of the
good.
12. Profit Maximization for the
Competitive Firm
The goal of a competitive firm is to
maximize profit.
This means that the firm will want to
produce the quantity that maximizes
the difference between total revenue
and total cost.
14. P = AR = MR
P=MR1
MC
Profit Maximization for the Competitive
Firm...
Quantity
0
Costs
and
Revenue
ATC
AVC
QMAX
The firm maximizes profit
by producing the quantity
at which marginal cost
equals marginal revenue.
MC1
Q1
MC2
Q2
15. Profit Maximization for the
Competitive Firm
Profit maximization occurs at the
quantity where marginal revenue
equals marginal cost.
16. Profit Maximization for the Competitive
Firm
When MR > MC increase Q
When MR < MC decrease Q
When MR = MC Profit is
maximized.
17. The Marginal-Cost Curve and the Firm’s
Supply Decision...
Quantity
0
Costs
and
Revenue
MC
ATC
AVC
Q1
P1
P2
Q2
This section of the
firm’s MC curve is also
the firm’s supply
curve.
18. The Firm’s Short-Run Decision to Shut
Down
A shutdown refers to a short-run
decision not to produce anything during
a specific period of time because of
current market conditions.
Exit refers to a long-run decision to
leave the market.
19. The Firm’s Short-Run Decision to
Shut Down
The firm considers its sunk costs
when deciding to exit, but ignores
them when deciding whether to
shut down.
Sunk costs are costs that have
already been committed and cannot
be recovered.
20. The Firm’s Short-Run Decision to Shut
Down
The firm shuts down if the revenue it gets from producing is less than
the variable cost of production.
Shut down if TR < VC
Shut down if TR/Q < VC/Q
Shut down if P < AVC
21. The Firm’s Short-Run Decision to Shut
Down...
Quantity
ATC
AVC
0
Costs
MC
If P < AVC,
shut down.
If P > AVC,
keep producing
in the short run.
If P > ATC,
keep producing
at a profit.
Firm’s short-run
supply curve.
22. The Firm’s Short-Run Decision to
Shut Down
The portion of the marginal-cost
curve that lies above average
variable cost is the competitive firm’s
short-run supply curve.
23. The Firm’s Long-Run Decision to Exit or
Enter a Market
In the long-run, the firm exits if the revenue it would get from
producing is less than its total cost.
Exit if TR < TC
Exit if TR/Q < TC/Q
Exit if P < ATC
24. The Firm’s Long-Run Decision to Exit or
Enter a Market
A firm will enter the industry if such an action would be profitable.
Enter if TR > TC
Enter if TR/Q > TC/Q
Enter if P > ATC
25. The Competitive Firm’s Long-Run Supply
Curve...
Quantity
MC = Long-run S
ATC
AVC
0
Costs
Firm enters
if P > ATC
Firm exits
if P < ATC
26. The Competitive Firm’s Long-Run
Supply Curve
The competitive firm’s long-run
supply curve is the portion of its
marginal-cost curve that lies above
average total cost.
27. The Competitive Firm’s Long-Run Supply
Curve...
Quantity
MC
ATC
AVC
0
Costs
Firm’s long-run
supply curve
28. The Firm’s Short-Run and Long-Run Supply
Curves
Short-Run Supply Curve
The portion of its marginal cost curve that
lies above average variable cost.
Long-Run Supply Curve
The marginal cost curve above the
minimum point of its average total cost
curve.
29. Profit
Q
Measuring Profit in the Graph for the
Competitive Firm...
Quantity
0
Price
P = AR = MR
ATC
MC
P
ATC
Profit-maximizing quantity
a. A Firm with Profits
30. Loss
Measuring Profit in the Graph for the
Competitive Firm...
Quantity
0
Price
P = AR = MR
ATC
MC
P
Q
Loss-minimizing quantity
ATC
b. A Firm with Losses
31. Supply in a Competitive Market
Market supply equals the sum of
the quantities supplied by the
individual firms in the market.
32. The Short Run: Market Supply with a
Fixed Number of Firms
For any given price, each firm supplies a
quantity of output so that its marginal
cost equals price.
The market supply curve reflects the
individual firms’ marginal cost curves.
33. The Short Run: Market Supply with a
Fixed Number of Firms...
(a) Individual Firm Supply
Quantity
(firm)
0
Price
(b) Market Supply
Quantity
(market)
Price
0
Supply
MC
1.00
$2.00
100 200
1.00
$2.00
100,000 200,000
34. The Long Run: Market Supply with Entry
and Exit
Firms will enter or exit the market until
profit is driven to zero.
In the long run, price equals the
minimum of average total cost.
The long-run market supply curve is
horizontal at this price.
35. The Long Run: Market Supply with Entry
and Exit...
(a) Firm’s Zero-Profit Condition
Quantity
(firm)
0
Price
P =
minimum
ATC
(b) Market Supply
Quantity
(market)
Price
0
Supply
MC
ATC
36. The Long Run: Market Supply with Entry
and Exit
At the end of the process of entry and
exit, firms that remain must be making
zero economic profit.
The process of entry & exit ends only
when price and average total cost are
driven to equality.
Long-run equilibrium must have firms
operating at their efficient scale.
37. Firms Stay in Business with Zero Profit
Profit equals total revenue minus total
cost.
Total cost includes all the opportunity
costs of the firm.
In the zero-profit equilibrium, the firm’s
revenue compensates the owners for the
time and money they expend to keep the
business going.
38. Increase in Demand in the Short Run
An increase in demand raises
price and quantity in the short
run.
Firms earn profits because price
now exceeds average total cost.
39. Increase in Demand in the Short Run...
Market
Firm
Quantity
(firm)
0
Price
MC
ATC
P1
Quantity
(market)
Price
0
D1
P1
Q1
A
S1
Long-run
supply
(a) Initial Condition
P
40. D2
Increase in Demand in the Short Run...
Market
Firm
Quantity
(firm)
0
Price
MC ATC
P1
Quantity
(market)
Price
0
D1
P1
Q1
A
S1
Long-run
supply
(b) Short-Run Response
Q2
B
P2
P2
Profit
41. Increase in Demand in the Short Run...
Market
Firm
Quantity
(firm)
0
Price
MC ATC
P1
Quantity
(market)
Price
0
D1
P1
Q1
A
S1
Long-run
supply
(c) Long-Run Response
D2
B
Q2
P2
S2
C
Q3
42. Why the Long-Run Supply Curve Might
Slope Upward
Some resources used in
production may be available
only in limited quantities.
Firms may have different costs.
44. Summary
Because a competitive firm is a
price taker, its revenue is
proportional to the amount of
output it produces.
The price of the good equals both
the firm’s average revenue and its
marginal revenue.
45. Summary
To maximize profit a firm chooses
the quantity of output such that
marginal revenue equals marginal
cost.
This is also the quantity at which
price equals marginal cost.
Therefore, the firm’s marginal cost
curve is its supply curve.
46. Summary
In the short run when a firm cannot recover
its fixed costs, the firm will choose to shut
down temporarily if the price of the good is
less than average variable cost.
In the long run when the firm can recover
both fixed and variable costs, it will choose
to exit if the price is less than average total
cost.
47. Summary
In a market with free entry and
exit, profits are driven to zero in the
long run and all firms produce at
the efficient scale.
Changes in demand have different
effects over different time horizons.
49. Profit Maximization for the Competitive
Firm...
P = AR = MR
P=MR1
MC
Quantity
0
Costs
and
Revenue
ATC
AVC
QMAX
The firm maximizes
profit by producing the
quantity at which
marginal cost equals
marginal revenue.
MC1
Q1
MC2
Q2
50. The Marginal-Cost Curve and the Firm’s
Supply Decision...
Quantity
0
Costs
and
Revenue
MC
ATC
AVC
Q1
P1
P2
Q2
This section of the
firm’s MC curve is also
the firm’s supply
curve.
51. The Firm’s Short-Run Decision to Shut
Down...
Quantity
ATC
AVC
0
Costs
MC
If P < AVC,
shut down.
If P > AVC,
keep producing
in the short run.
If P > ATC,
keep producing
at a profit.
Firm’s short-run
supply curve.
52. The Competitive Firm’s Long-Run Supply
Curve...
Quantity
MC = Long-run S
ATC
AVC
0
Costs
Firm enters
if P > ATC
Firm exits
if P < ATC
53. The Competitive Firm’s Long-Run Supply
Curve...
Quantity
MC
ATC
AVC
0
Costs
Firm’s long-run
supply curve
54. Measuring Profit in the Graph for the
Competitive Firm...
Profit
Q Quantity
0
Price
P = AR = MR
ATC
MC
P
ATC
Profit-maximizing quantity
a. A Firm with Profits
55. Measuring Profit in the Graph for the
Competitive Firm...
Loss
Quantity
0
Price
P = AR = MR
ATC
MC
P
Q
Loss-minimizing quantity
ATC
b. A Firm with Losses
56. The Short Run: Market Supply with a
Fixed Number of Firms...
(a) Individual Firm Supply
Quantity
(firm)
0
Price
(b) Market Supply
Quantity
(market)
Price
0
Supply
MC
1.00
$2.00
100 200
1.00
$2.00
100,000 200,000
57. The Long Run: Market Supply with Entry
and Exit...
(a) Firm’s Zero-Profit Condition
Quantity
(firm)
0
Price
P =
minimum
ATC
(b) Market Supply
Quantity
(market)
Price
0
Supply
MC
ATC
58. Increase in Demand in the Short Run...
Market
Firm
Quantity
(firm)
0
Price
MC
ATC
P1
Quantity
(market)
Price
0
D1
P1
Q1
A
S1
Long-run
supply
(a) Initial Condition
P
59. Increase in Demand in the Short Run...
D2
Market
Firm
Quantity
(firm)
0
Price
MC ATC
P1
Quantity
(market)
Price
0
D1
P1
Q1
A
S1
Long-run
supply
(b) Short-Run Response
Q2
B
P2
P2
Profit
60. Increase in Demand in the Short Run...
Market
Firm
Quantity
(firm)
0
Price
MC ATC
P1
Quantity
(market)
Price
0
D1
P1
Q1
A
S1
Long-run
supply
(c) Long-Run Response
D2
B
Q2
P2
S2
C
Q3