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1. PURE
COMPETITION
© K I T T Y C O L Z

2. 
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© K I T T Y C O L Z

3. 
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TR = P x Q
AR = TR/Q = P
MR = ΔTR / ΔQ = P
© K I T T Y C O L Z

4. Firm’s Demand Schedule Firm’s Revenue Data
(1)
Product Price
(Average Revenue)
(2)
Quantity Demanded
(3)
Total Revenue
(TR),( I ) x (2)
(4)
Marginal Revenue
$131 0 $ 0 $131
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
AVERAGE, TOTAL AND MARGINAL REVENUE
© K I T T Y C O L Z

5. GRAPHIC PORTRAYAL
2 4 6 8 10 12
$1179
1048
917
786
655
524
393
262
131
0
PriceandRevenue
Quantity Demanded
(sold)
TR
D = MR
© K I T T Y C O L Z

6. TOTAL-REVENUE-TOTAL-COST APPROACH:
PROFIT-MAXIMIZATION CASE
PRICE: $131
(1)
Total
Product
(2)
Total Fixed
Cost
(3)
Total Variable
Cost
(4)
Total Cost
(5)
Total Revenue
(6)
Profit (+)
Loss ( - )
0 $100 $ 0 $100 $ 0 $ -100
1 100 90 190 131 -59
2 100 170 270 262 -8
3 100 240 340 393 +53
4 100 300 400 524 +124
5 100 370 470 655 +185
6 100 450 550 786 +236
7 100 540 640 917 +277
8 100 650 750 1048 +298
9 100 780 880 1179 +299
10 100 930 1030 1310 +280
© K I T T Y C O L Z

7. ̶
TR-TC APPROACH:
$1800
1500
1200
900
600
300
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14
TC
TR MAXIMUM
ECONOMIC
PROFIT
BREAK-EVEN POINT
(NORMAL PROFIT)
BREAK-EVEN POINT
(NORMAL PROFIT)
}
TotalRevenueandTotalCost
Qd
© K I T T Y C O L Z

8. ̶
0
TCTR
BREAK-EVEN POINT
(NORMAL PROFIT)
TotalRevenueandTotalCost
Qd
TR-TC APPROACH:
300
1 2 3
© K I T T Y C O L Z

9. 200
100
400
300
500
TOTAL ECONOMIC PROFIT
$299
TotalEconomicProfit
Quantity demanded
1 2 3 4 5 6 7 8 9 10 11 12 13 14
© K I T T Y C O L Z

10. MARGINAL-REVENUE-MARGINAL-COST APPROACH:
PROFIT-MAXIMIZING
(1)
Total
Product
(Output)
(2)
Average
Fixed Cost
(AFC)
(3)
Average
Variable
Cost (AVC)
(4)
Average
Total Cost
(ATC)
(5)
Marginal
Cost (MC)
(6)
Price =
Marginal
Revenue (MR)
(7)
Total
Economic
Profit (+)
or Loss (-)
0 $90 $131 $-100
1 $100.00 $90.00 $190.00 80 131 -59
2 50.00 85.00 135.00 70 131 -8
3 33.33 80.00 113.33 60 131 +53
4 25.00 75.00 100.00 70 131 +124
5 20.00 74.00 94.00 80 131 +185
6 16.67 75.00 91.67 90 131 +236
7 14.29 77.14 91.43 110 131 +277
8 12.50 81.25 93.75 130 131 +298
9 11.11 86.67 97.78 150 131 +299
10 10.00 93.00 103.00 +280
© K I T T Y C O L Z

11. $200
150
100
50
1 2 3 4 5 6 7 8 9 10
MR = P
AVC
ATC
ECONOMIC PROFIT
MC
MR-MC APPROACH:
̶
CostandRevenue
Output
P= $131
A= $97.78
© K I T T Y C O L Z

12. MARGINAL-REVENUE-MARGINAL-COST APPROACH:
LOSS-MINIMIZING
PRICE: $81 PRICE: $71
(1)
Total
Product
(Output)
(2)
Average
Fixed Cost
(AFC)
(3)
Average
Variable
Cost
(AVC)
(4)
Average
Total Cost
(ATC)
(5)
Marginal
Cost
(MC)
(6)
Marginal
Revenue
(MR)
(7)
Profit(+)
or
Loss (-)
(8)
Marginal
Revenue
(MR)
(7)
Profit(+)
or
Loss (-)
0 $90 $81 $-100 $71 $-100
1 $100.00 $90.00 $190.00 80 81 -109 71 -119
2 50.00 85.00 135.00 70 81 -108 71 -128
3 33.33 80.00 113.33 60 81 -97 71 -127
4 25.00 75.00 100.00 70 81 -76 71 -116
5 20.00 74.00 94.00 80 81 -65 71 -115
6 16.67 75.00 91.67 90 81 -64 71 -124
7 14.29 77.14 91.43 110 81 -73 71 -143
8 12.50 81.25 93.75 130 81 -102 71 -182
9 11.11 86.67 97.78 150 81 -151 71 -241
10 10.00 93.00 103.00 -220 71 -320
© K I T T Y C O L Z

13. $200
150
100
50
1 2 3 4 5 6 7 8 9 10
MR = P
AVC
ATC
MC
MR-MC APPROACH:
̶
ECONOMIC LOSS
CostandRevenue
Output
A = $91.67
P = $81
V = $75
© K I T T Y C O L Z

14. $200
150
100
50
1 2 3 4 5 6 7 8 9 10
MR = P
MC
AVC
ATC
CostandRevenue
Output
P = $71
© K I T T Y C O L Z

15. Price
Quantity
Supplied
Maximum Profit (+)
or
Minimum Loss (-)
$151 10 $+480
131 9 +299
111 8 +138
91 7 -3
81 6 -64
71 0 -100
61 0 -100
© K I T T Y C O L Z

16. a
b
c
d
e
P5
P4
P3
P2
P1
ATC
AVC
MC
MR5
MR4
MR3
MR2
MR1
Costsandrevenues(dollars)
QS
Q2 Q3 Q4 Q5
© K I T T Y C O L Z

17. (1)
Quantity
Supplied,
Single Firm
(2)
Total Quantity
Supplied, 1000
Firms
(3)
Product Price
(4)
Total Quantity
Demanded
10 10,000 $151 4000
9 9000 131 6000
8 8000 111 8000
7 7000 91 9000
6 6000 81 11,000
0 0 71 13,000
0 0 61 16,000
© K I T T Y C O L Z

18. MC
ATC
AVC
D
S = ∑ MC’s
$111
8
$111
8000
SINGLE FIRM INDUSTRY
© K I T T Y C O L Z

19. MC
ATC
MR
D1
S1
$60
100 90,000
D2
S2
50
40
$60
50
40
MR
100,000 110,000
SINGLE FIRM INDUSTRY
© K I T T Y C O L Z

20. MC
ATC
D3
S3
$60
900 90,000
D1
S1
50
40
$60
50
40
100,000
SINGLE FIRM INDUSTRY
© K I T T Y C O L Z

21. $50
Z3 Z1 Z2
S
D3 D1
D2
Q3 Q1 Q2
90,000 100,000 110,000
P1
P2
P3
© K I T T Y C O L Z

22. D3 D1 D2
P2
P1
P3
$55
50
45
Y3
Y1
Y2
S
Q3 Q1 Q2
90,000 100,000 110,000
© K I T T Y C O L Z

23. D3 D1 D2
P2
P1
P3
$55
50
45
Y3
Y1
Y2
S
Q3 Q1 Q2
90,000 100,000 110,000
© K I T T Y C O L Z

24. MC
ATC
MR
P=MC = minimum ATC
(normal profit)
P
Q0
© K I T T Y C O L Z

25. S
D
PRODUCER SURPLUS
P
Q0
CONSUMERSURPLUS
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26. PURE COMPETITION AND EFFICIENCY

P = Minimum ATC
© K I T T Y C O L Z

27. PURE COMPETITION AND EFFICIENCY

P = MC
© K I T T Y C O L Z

28. P = MC defines ALLOCATIVE EFFICIENCY:
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© K I T T Y C O L Z