This document discusses the characteristics of perfect competition and how perfectly competitive firms behave in the short run and long run. In the short run, a perfectly competitive firm is a price taker and will produce where marginal revenue equals marginal cost to maximize profits. The firm's demand curve is horizontal at the market price. In the long run, if the market price is above the minimum average total cost, firms will enter the industry, increasing supply and driving the price back down. The type of industry determines whether the long run supply curve is horizontal, upward-sloping, or downward-sloping. Perfect competition leads to efficiency as firms aim to minimize costs.
This presentation basically tells how the firm makes decisions in a competitive market. To make concepts here more understable, I have prepared graphs and mathematical equations.
1) The document discusses the concept of perfect competition and firm equilibrium under conditions of perfect competition.
2) A key aspect of perfect competition is that there are many small producers and consumers in the market buying and selling homogeneous products, and all participants have perfect information. The market price is determined by supply and demand forces outside the control of individual firms.
3) For a firm to be in equilibrium under perfect competition, its marginal cost must equal its marginal revenue (which is equal to the market price). At this equilibrium point, the firm maximizes its profits.
4) The document contrasts the short run and long run equilibriums for firms under perfect competition and how super normal profits, normal profits
- A monopoly is characterized by a single seller in a market with very high barriers to entry that make it almost impossible for competitors to enter. As the sole producer, a monopoly can set its own price.
- A monopoly's demand curve is the market demand curve since it is the only seller. It produces where marginal revenue equals marginal cost to maximize profits. However, unlike perfect competition, the monopoly's price exceeds marginal revenue.
- By producing a lower quantity than would be socially optimal, monopolies create deadweight loss and reduce total welfare for society.
I.) Market structures range from perfect competition to monopoly, with monopolistic competition and oligopoly in between.
II.) Perfect competition has many small firms, identical products, free entry and exit, and price equal to marginal cost.
III.) Monopoly is the opposite, with a single seller, large barriers to entry, some market control over price, and inefficiency.
1. The document discusses the concept of perfect competition, which is an ideal market structure with no barriers to entry, homogeneous products, perfect information, and price-taking firms and consumers.
2. Under perfect competition, firms seek to maximize profits by producing at the level where marginal revenue equals marginal cost, and marginal cost is rising. In the long run, no firms earn abnormal profits as free entry and exit drives prices down to minimum average cost.
3. The perfect competition model serves as a benchmark for analyzing market imperfections, as it achieves an efficient allocation of resources where price equals minimum average cost and marginal cost equals marginal benefit to consumers.
This document discusses market structures, specifically perfect competition. It defines key features of perfect competition including a large number of buyers and sellers, homogeneous products, free entry and exit, and perfect information. Under perfect competition, firms are price takers and maximize profits by producing where marginal revenue equals marginal cost. In the long run, no firms earn supernormal profits and all firms earn only normal profits as entry and exit leads to equilibrium.
Perfect Competition describes a market structure with many small firms producing identical products, with easy entry and exit from the market. Under Perfect Competition, firms aim to maximize profits by producing where their marginal cost equals marginal revenue. At this point of equilibrium, firms can earn normal profits but cannot earn abnormal profits in the long run due to competition. The key characteristics of Perfect Competition are that it is very efficient, always reaches equilibrium prices and quantities, and provides consumers with the best prices.
The document discusses the concept of perfect competition. It defines perfect competition as a market with many small firms, homogeneous products, free entry and exit, and perfect information. Under perfect competition in the short run, firms are price takers and will produce at the price that maximizes their profits where marginal revenue equals marginal cost. In the long run, perfectly competitive firms will earn only normal profits as entry and exit will cause prices to adjust until average costs are equal to prices.
This presentation basically tells how the firm makes decisions in a competitive market. To make concepts here more understable, I have prepared graphs and mathematical equations.
1) The document discusses the concept of perfect competition and firm equilibrium under conditions of perfect competition.
2) A key aspect of perfect competition is that there are many small producers and consumers in the market buying and selling homogeneous products, and all participants have perfect information. The market price is determined by supply and demand forces outside the control of individual firms.
3) For a firm to be in equilibrium under perfect competition, its marginal cost must equal its marginal revenue (which is equal to the market price). At this equilibrium point, the firm maximizes its profits.
4) The document contrasts the short run and long run equilibriums for firms under perfect competition and how super normal profits, normal profits
- A monopoly is characterized by a single seller in a market with very high barriers to entry that make it almost impossible for competitors to enter. As the sole producer, a monopoly can set its own price.
- A monopoly's demand curve is the market demand curve since it is the only seller. It produces where marginal revenue equals marginal cost to maximize profits. However, unlike perfect competition, the monopoly's price exceeds marginal revenue.
- By producing a lower quantity than would be socially optimal, monopolies create deadweight loss and reduce total welfare for society.
I.) Market structures range from perfect competition to monopoly, with monopolistic competition and oligopoly in between.
II.) Perfect competition has many small firms, identical products, free entry and exit, and price equal to marginal cost.
III.) Monopoly is the opposite, with a single seller, large barriers to entry, some market control over price, and inefficiency.
1. The document discusses the concept of perfect competition, which is an ideal market structure with no barriers to entry, homogeneous products, perfect information, and price-taking firms and consumers.
2. Under perfect competition, firms seek to maximize profits by producing at the level where marginal revenue equals marginal cost, and marginal cost is rising. In the long run, no firms earn abnormal profits as free entry and exit drives prices down to minimum average cost.
3. The perfect competition model serves as a benchmark for analyzing market imperfections, as it achieves an efficient allocation of resources where price equals minimum average cost and marginal cost equals marginal benefit to consumers.
This document discusses market structures, specifically perfect competition. It defines key features of perfect competition including a large number of buyers and sellers, homogeneous products, free entry and exit, and perfect information. Under perfect competition, firms are price takers and maximize profits by producing where marginal revenue equals marginal cost. In the long run, no firms earn supernormal profits and all firms earn only normal profits as entry and exit leads to equilibrium.
Perfect Competition describes a market structure with many small firms producing identical products, with easy entry and exit from the market. Under Perfect Competition, firms aim to maximize profits by producing where their marginal cost equals marginal revenue. At this point of equilibrium, firms can earn normal profits but cannot earn abnormal profits in the long run due to competition. The key characteristics of Perfect Competition are that it is very efficient, always reaches equilibrium prices and quantities, and provides consumers with the best prices.
The document discusses the concept of perfect competition. It defines perfect competition as a market with many small firms, homogeneous products, free entry and exit, and perfect information. Under perfect competition in the short run, firms are price takers and will produce at the price that maximizes their profits where marginal revenue equals marginal cost. In the long run, perfectly competitive firms will earn only normal profits as entry and exit will cause prices to adjust until average costs are equal to prices.
The document summarizes the key concepts of perfect competition in the short run and long run. In the short run, firms take the market price as given and produce where marginal cost equals marginal revenue to maximize profits. In the long run, if firms earn profits, more will enter the industry, increasing supply and driving prices down until profits are zero and the industry reaches long run equilibrium.
The document discusses perfect competition in three sentences:
Perfect competition requires a large number of small firms, standardized products, and free entry and exit into the market. Under perfect competition, firms are price takers and maximize profits by producing where marginal revenue equals marginal cost. The market equilibrium price is determined by the intersection of total market demand and supply, with competitive firms earning profits or losses based on the relationship between price and their average total costs.
In a perfectly competitive market, there are many small firms producing identical goods with easy entry and exit. Each firm is a price taker, unable to influence the market price. In the short run, a firm will operate at the quantity where marginal revenue equals marginal cost to maximize profits. This can result in either economic profits or losses. In the long run, if there are economic profits, more firms will enter the market, driving the price down until profits reach zero. If there are economic losses, firms will exit until the price rises and losses become zero, reaching long run equilibrium with normal profits.
Perfect competition is characterized by many small firms, identical products, free entry and exit, and perfect information. In the short run, firms take the market price as given and produce where marginal cost equals marginal revenue to maximize profits. If there are profits, more firms will enter in the long run, driving the price down until it equals minimum average total cost and profits are zero. If there are losses, firms will exit until price increases and losses disappear, also resulting in zero profits in the long run equilibrium.
Perfect competition is characterized by many small firms, homogeneous products, perfect information and free entry and exit. Under perfect competition in the short-run, firms are price takers and maximize profits by producing where marginal revenue equals marginal cost. In long-run equilibrium, firms earn zero economic profit as entry and exit cause supply to equal minimum average total cost. Perfect competition leads to productive and allocative efficiency.
The document outlines the key assumptions of perfect competition: many buyers and sellers, homogeneous goods, free entry and exit, perfect information and profit maximization. It then explains concepts like price taking behavior, short-run and long-run equilibrium for firms, and how advertising is unnecessary. Perfect competition benefits consumers through lowest prices and benefits the economy by promoting efficiency and competition.
This document discusses revenue analysis and profit maximization for firms operating under different market structures. It defines total revenue as the quantity sold multiplied by price, and explains how total revenue curves differ between perfect competition and imperfect competition like monopoly. The key points are:
1) In perfect competition, price is set by the market and total revenue increases linearly with quantity sold. In imperfect competition, firms can set their own prices, causing total revenue curves to be inverted-U shaped.
2) Profit is maximized where marginal revenue equals marginal cost and marginal revenue is falling.
3) For perfect competition, maximum profit occurs at the quantity where a tangent drawn to total cost is parallel to total revenue. For monopoly,
The document defines and classifies markets based on area, time, competition, function, commodity, and legality. It also discusses different market structures including perfect competition, imperfect competition, monopoly, and oligopoly. Under each structure, it examines firm behavior and equilibrium in both the short run and long run. In perfect competition, firms are price takers and maximize profits where MR=MC. Imperfect structures feature product differentiation and few firms. Monopolies and oligopolies have strategic interdependence between few dominant sellers.
A market is perfectly competitive if
There are large number of sellers and buyers of the commodity – therefore no individuals can influence price
Homogeneous products across all firms in the industry.
Perfect mobility of resources.
All the economic agents (consumers, producers, factor owners) in the market have perfect knowledge of present and future prices and costs
1. The document discusses concepts of revenue including total revenue, average revenue, and marginal revenue under conditions of perfect competition and imperfect competition.
2. It explains that under perfect competition, price equals average revenue which also equals marginal revenue, whereas under imperfect competition, average revenue is equal to price but marginal revenue declines as output increases.
3. The key conditions for a firm to maximize its profit are for marginal revenue to equal marginal cost and for the marginal cost curve to be rising. Profit is maximized at the level of output where these two conditions are met.
1. Perfect competition is characterized by many small firms and buyers, homogeneous products, free entry and exit, and perfect information.
2. Under perfect competition, firms are price takers and cannot influence the market price. They must sell at the going market price.
3. In the short run, a perfectly competitive firm will produce at the quantity where marginal revenue equals marginal cost to maximize profits. In the long run, firms will enter or exit the market until economic profits are driven down to zero.
This document discusses the cost curves (MC, ATC, AVC) of a small oil drilling firm operating as a price taker. It shows the firm in equilibrium at point A where price equals marginal cost at the lowest point of the ATC curve, breaking even. If price decreases, quantity supplied decreases along the MC curve. The firm can withstand price decreases until price falls below the lowest point of the AVC curve, point D, at which point it should shut down as it is not covering any fixed costs or fully covering variable costs.
The document discusses perfect competition and perfectly competitive markets. It defines the key assumptions of perfect competition as firms being price takers, products being homogeneous, and free entry and exit in the industry. It explains that in the short run, competitive firms will operate at a loss, earn normal profits, or supernormal profits depending on whether price is below average cost, equal to average cost, or above average cost. In the long run, entry and exit of firms will drive prices down to equal minimum long run average cost, resulting in zero economic profits.
Perfect competition is an ideal market structure where many small firms produce identical goods, there are no barriers to entry or exit, and both buyers and sellers have perfect information. Under perfect competition in the long run, firms earn zero economic profit and both allocative and productive efficiency are achieved as price equals marginal cost and firms produce at minimum average total cost.
1) The document discusses the concept of pure competition and profit maximization for firms in pure competition. It defines the characteristics of pure competition and how demand is perceived by purely competitive firms as perfectly elastic.
2) It then covers the two approaches firms use to maximize profits in the short-run: total revenue-total cost and marginal revenue-marginal cost. Both approaches are shown to result in the rule of producing at the quantity where marginal revenue equals marginal cost.
3) The document concludes by discussing how purely competitive firms maximize profits in the long-run through free entry and exit until economic profits are driven down to zero and price equals minimum average total cost.
Firms in competitive markets are price takers and maximize profits by producing where marginal revenue equals marginal cost. In the short run, a competitive firm's supply curve is its marginal cost curve. In the long run, firms will enter or exit the market to earn normal profits when price equals average total cost. If demand increases in the short run, price and quantity rise as firms earn profits. In the long run, entry of new firms causes supply to increase, price and profits to fall back to normal.
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 document discusses key concepts relating to perfect competition, including:
- Firms are price-takers and face perfectly elastic demand in competitive markets
- Profit maximization occurs where marginal revenue equals marginal cost
- In the short-run, a firm may earn profits, losses, or just cover costs
- In the long-run, if profits exist, entry by new firms will increase supply and drive prices down until profits are eliminated
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.
This document provides an overview of different market structures, with a focus on perfect competition. It defines key concepts related to revenue, costs, and profit maximization for firms in competitive markets. Perfect competition is characterized by many small firms, homogeneous products, free entry and exit, and perfect information. Under perfect competition, firms are price takers and marginal revenue equals price. Equilibrium occurs where marginal cost equals marginal revenue. The document also discusses long-run equilibrium and how perfect competition leads to allocative efficiency.
There are 4 main types of market structures: perfect competition, monopoly, monopolistic competition, and oligopoly. Perfect competition is characterized by many small firms, homogeneous products, free entry and exit, and perfect information. Under perfect competition, firms are price takers and marginal revenue equals price. In both the short run and long run, firms will produce where marginal cost equals marginal revenue to maximize profits. The perfectly competitive market leads to productive and allocative efficiency.
The document summarizes the key concepts of perfect competition in the short run and long run. In the short run, firms take the market price as given and produce where marginal cost equals marginal revenue to maximize profits. In the long run, if firms earn profits, more will enter the industry, increasing supply and driving prices down until profits are zero and the industry reaches long run equilibrium.
The document discusses perfect competition in three sentences:
Perfect competition requires a large number of small firms, standardized products, and free entry and exit into the market. Under perfect competition, firms are price takers and maximize profits by producing where marginal revenue equals marginal cost. The market equilibrium price is determined by the intersection of total market demand and supply, with competitive firms earning profits or losses based on the relationship between price and their average total costs.
In a perfectly competitive market, there are many small firms producing identical goods with easy entry and exit. Each firm is a price taker, unable to influence the market price. In the short run, a firm will operate at the quantity where marginal revenue equals marginal cost to maximize profits. This can result in either economic profits or losses. In the long run, if there are economic profits, more firms will enter the market, driving the price down until profits reach zero. If there are economic losses, firms will exit until the price rises and losses become zero, reaching long run equilibrium with normal profits.
Perfect competition is characterized by many small firms, identical products, free entry and exit, and perfect information. In the short run, firms take the market price as given and produce where marginal cost equals marginal revenue to maximize profits. If there are profits, more firms will enter in the long run, driving the price down until it equals minimum average total cost and profits are zero. If there are losses, firms will exit until price increases and losses disappear, also resulting in zero profits in the long run equilibrium.
Perfect competition is characterized by many small firms, homogeneous products, perfect information and free entry and exit. Under perfect competition in the short-run, firms are price takers and maximize profits by producing where marginal revenue equals marginal cost. In long-run equilibrium, firms earn zero economic profit as entry and exit cause supply to equal minimum average total cost. Perfect competition leads to productive and allocative efficiency.
The document outlines the key assumptions of perfect competition: many buyers and sellers, homogeneous goods, free entry and exit, perfect information and profit maximization. It then explains concepts like price taking behavior, short-run and long-run equilibrium for firms, and how advertising is unnecessary. Perfect competition benefits consumers through lowest prices and benefits the economy by promoting efficiency and competition.
This document discusses revenue analysis and profit maximization for firms operating under different market structures. It defines total revenue as the quantity sold multiplied by price, and explains how total revenue curves differ between perfect competition and imperfect competition like monopoly. The key points are:
1) In perfect competition, price is set by the market and total revenue increases linearly with quantity sold. In imperfect competition, firms can set their own prices, causing total revenue curves to be inverted-U shaped.
2) Profit is maximized where marginal revenue equals marginal cost and marginal revenue is falling.
3) For perfect competition, maximum profit occurs at the quantity where a tangent drawn to total cost is parallel to total revenue. For monopoly,
The document defines and classifies markets based on area, time, competition, function, commodity, and legality. It also discusses different market structures including perfect competition, imperfect competition, monopoly, and oligopoly. Under each structure, it examines firm behavior and equilibrium in both the short run and long run. In perfect competition, firms are price takers and maximize profits where MR=MC. Imperfect structures feature product differentiation and few firms. Monopolies and oligopolies have strategic interdependence between few dominant sellers.
A market is perfectly competitive if
There are large number of sellers and buyers of the commodity – therefore no individuals can influence price
Homogeneous products across all firms in the industry.
Perfect mobility of resources.
All the economic agents (consumers, producers, factor owners) in the market have perfect knowledge of present and future prices and costs
1. The document discusses concepts of revenue including total revenue, average revenue, and marginal revenue under conditions of perfect competition and imperfect competition.
2. It explains that under perfect competition, price equals average revenue which also equals marginal revenue, whereas under imperfect competition, average revenue is equal to price but marginal revenue declines as output increases.
3. The key conditions for a firm to maximize its profit are for marginal revenue to equal marginal cost and for the marginal cost curve to be rising. Profit is maximized at the level of output where these two conditions are met.
1. Perfect competition is characterized by many small firms and buyers, homogeneous products, free entry and exit, and perfect information.
2. Under perfect competition, firms are price takers and cannot influence the market price. They must sell at the going market price.
3. In the short run, a perfectly competitive firm will produce at the quantity where marginal revenue equals marginal cost to maximize profits. In the long run, firms will enter or exit the market until economic profits are driven down to zero.
This document discusses the cost curves (MC, ATC, AVC) of a small oil drilling firm operating as a price taker. It shows the firm in equilibrium at point A where price equals marginal cost at the lowest point of the ATC curve, breaking even. If price decreases, quantity supplied decreases along the MC curve. The firm can withstand price decreases until price falls below the lowest point of the AVC curve, point D, at which point it should shut down as it is not covering any fixed costs or fully covering variable costs.
The document discusses perfect competition and perfectly competitive markets. It defines the key assumptions of perfect competition as firms being price takers, products being homogeneous, and free entry and exit in the industry. It explains that in the short run, competitive firms will operate at a loss, earn normal profits, or supernormal profits depending on whether price is below average cost, equal to average cost, or above average cost. In the long run, entry and exit of firms will drive prices down to equal minimum long run average cost, resulting in zero economic profits.
Perfect competition is an ideal market structure where many small firms produce identical goods, there are no barriers to entry or exit, and both buyers and sellers have perfect information. Under perfect competition in the long run, firms earn zero economic profit and both allocative and productive efficiency are achieved as price equals marginal cost and firms produce at minimum average total cost.
1) The document discusses the concept of pure competition and profit maximization for firms in pure competition. It defines the characteristics of pure competition and how demand is perceived by purely competitive firms as perfectly elastic.
2) It then covers the two approaches firms use to maximize profits in the short-run: total revenue-total cost and marginal revenue-marginal cost. Both approaches are shown to result in the rule of producing at the quantity where marginal revenue equals marginal cost.
3) The document concludes by discussing how purely competitive firms maximize profits in the long-run through free entry and exit until economic profits are driven down to zero and price equals minimum average total cost.
Firms in competitive markets are price takers and maximize profits by producing where marginal revenue equals marginal cost. In the short run, a competitive firm's supply curve is its marginal cost curve. In the long run, firms will enter or exit the market to earn normal profits when price equals average total cost. If demand increases in the short run, price and quantity rise as firms earn profits. In the long run, entry of new firms causes supply to increase, price and profits to fall back to normal.
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 document discusses key concepts relating to perfect competition, including:
- Firms are price-takers and face perfectly elastic demand in competitive markets
- Profit maximization occurs where marginal revenue equals marginal cost
- In the short-run, a firm may earn profits, losses, or just cover costs
- In the long-run, if profits exist, entry by new firms will increase supply and drive prices down until profits are eliminated
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.
This document provides an overview of different market structures, with a focus on perfect competition. It defines key concepts related to revenue, costs, and profit maximization for firms in competitive markets. Perfect competition is characterized by many small firms, homogeneous products, free entry and exit, and perfect information. Under perfect competition, firms are price takers and marginal revenue equals price. Equilibrium occurs where marginal cost equals marginal revenue. The document also discusses long-run equilibrium and how perfect competition leads to allocative efficiency.
There are 4 main types of market structures: perfect competition, monopoly, monopolistic competition, and oligopoly. Perfect competition is characterized by many small firms, homogeneous products, free entry and exit, and perfect information. Under perfect competition, firms are price takers and marginal revenue equals price. In both the short run and long run, firms will produce where marginal cost equals marginal revenue to maximize profits. The perfectly competitive market leads to productive and allocative efficiency.
1. The document discusses the characteristics and pricing behavior of perfectly competitive markets. It defines perfect competition and describes its key features.
2. Under perfect competition, firms are price takers and equilibrium occurs where price equals marginal cost. In the short run, firms will shut down if price falls below average variable cost.
3. In the long run, firms will enter or exit the market until price equals minimum average cost and normal profits are achieved. Perfect competition leads to allocative and productive efficiency.
1) A perfectly competitive firm is a price taker and will produce the quantity where marginal revenue equals marginal cost to maximize profits.
2) In the short run, if price is below average variable cost the firm will shut down, and if below average total cost the firm will exit the market in the long run.
3) The market supply curve is determined by the marginal cost curves of all firms, and will be horizontal at the minimum of average total cost in the long run equilibrium with free entry and exit.
This chapter discusses perfect competition and profit maximization in competitive markets. It contains the following key points:
1. Under perfect competition, there are many small firms and buyers/sellers, homogeneous products, free entry and exit, and perfect information. Firms are price takers and maximize profits by producing where marginal revenue equals marginal cost.
2. In the short run, firms will shut down if price falls below average variable cost or operate at a loss if price is between average variable and average total cost. In the long run, zero economic profits are achieved through free entry and exit of firms.
3. External changes like shifting demand curves or new technology can impact market equilibrium price and quantity in both the
This chapter discusses perfect competition and profit maximization in perfect competition. It contains the following key points:
1. Under perfect competition, there are many small firms and buyers/sellers, homogeneous products, free entry and exit, and perfect information. Firms are price takers and maximize profits by producing where MR=MC.
2. In the short run, firms will shut down if P<AVC or operate to minimize losses if ATC>P>AVC. In the long run, zero economic profits are achieved through free entry and exit of firms.
3. External changes like shifting demand curves or new technology can impact market equilibrium prices and quantities in the short and long run through adjustments to
The document discusses four market structures: pure competition, pure monopoly, monopolistic competition, and oligopoly. It provides details on the characteristics, pricing, and profit maximization analysis of perfect competition and pure monopoly. An example is given to illustrate the cost structure and profit calculation of a perfectly competitive firm. Market equilibrium is determined by comparing individual firm supply and market demand. [/SUMMARY]
Profit maximization and perfect competitionjaveria gul
1) A firm produces at the quantity where marginal revenue equals marginal cost to maximize profits. This is the point where additional revenue from producing another unit equals the additional costs.
2) A firm's profit is maximized by producing at the output level where marginal revenue equals marginal cost. Producing more would mean marginal costs exceed marginal revenues, reducing profits.
3) In the short run, a competitive firm will produce the quantity where marginal revenue equals marginal cost to maximize profits. The firm's profit is represented by the rectangle between average total cost and marginal cost at the profit-maximizing quantity.
The document describes the key characteristics and assumptions of perfect competition, including firms being price takers, products being homogeneous, and free entry and exit in the industry. It discusses how in the short run, firms will operate at a loss, normal profit, or supernormal profit depending on whether price is below, equal to, or above average total cost. In the long run, entry and exit of firms will drive price down to equal long run average cost, resulting in zero economic profit.
1) The document discusses the behavior of firms in perfectly competitive markets. It examines how a competitive firm determines the profit-maximizing quantity to produce based on the relationship between marginal revenue, average total cost, and marginal cost.
2) In the short run, a competitive firm will shut down production if the market price falls below average variable cost. In the long run, a firm will exit the market if price falls below average total cost.
3) The market supply curve is determined by summing the individual supply curves of all firms. In the short run, the market supply curve is the portion of the marginal cost curve above average variable cost. In the long run, it is horizontal at the price equal to minimum
- A market is defined as the interaction between buyers and sellers of a product where the price tends to be uniform. Market structure depends on the number of firms, nature of products, barriers to entry, and degree of price control.
- Under perfect competition there are many small firms, homogeneous products, free entry and exit, and no single firm can influence price. Equilibrium occurs where marginal cost equals price.
- Monopoly is characterized by a single firm, no close substitutes, and high barriers to entry. The monopolist's equilibrium occurs where marginal revenue equals marginal cost and price is above marginal cost.
Session 10 firms in competitive markets May Primadani
A perfectly competitive market has many small firms, identical products, and free entry and exit. Each firm is a price taker and maximizes profits by producing where marginal revenue equals marginal cost. In the short run, firms will shut down if price is below average variable cost, while in the long run firms will exit if price is below average total cost. Market supply results from the aggregation of individual firm supplies. In the long run, entry and exit of firms drives the market to equilibrium with zero profits.
The document defines and explains the characteristics of perfect competition. It states that a perfectly competitive market has many small firms, identical products, free entry and exit, and perfect information. Firms are price takers and the industry supply and demand curve determines price. The individual firm's demand curve is perfectly elastic and it will produce where price equals marginal cost. In the short run, firms can experience super-normal profits, normal profits, losses or exit the market if average costs exceed average revenue. In long run equilibrium, firms earn only normal profits.
The document discusses the characteristics and behavior of firms in a perfectly competitive market. It explains that in the short run, a competitive firm will shut down if price is below average variable cost, while in the long run it will exit the market if price is below average total cost. The firm's marginal cost curve represents its supply curve. The market supply curve is determined by the summation of individual firms' supply. In the long run, free entry and exit will drive profits to zero.
The document discusses various cost concepts in business economics including cost functions, opportunity costs, types of costs, fixed and variable costs, total costs, average costs, marginal costs, break-even analysis, contribution margin, and profit-volume ratio. It provides definitions and formulas for these concepts and illustrates their calculation and application in decision making.
Exploiting Artificial Intelligence for Empowering Researchers and Faculty, In...Dr. Vinod Kumar Kanvaria
Exploiting Artificial Intelligence for Empowering Researchers and Faculty,
International FDP on Fundamentals of Research in Social Sciences
at Integral University, Lucknow, 06.06.2024
By Dr. Vinod Kumar Kanvaria
A workshop hosted by the South African Journal of Science aimed at postgraduate students and early career researchers with little or no experience in writing and publishing journal articles.
This slide is special for master students (MIBS & MIFB) in UUM. Also useful for readers who are interested in the topic of contemporary Islamic banking.
A review of the growth of the Israel Genealogy Research Association Database Collection for the last 12 months. Our collection is now passed the 3 million mark and still growing. See which archives have contributed the most. See the different types of records we have, and which years have had records added. You can also see what we have for the future.
How to Fix the Import Error in the Odoo 17Celine George
An import error occurs when a program fails to import a module or library, disrupting its execution. In languages like Python, this issue arises when the specified module cannot be found or accessed, hindering the program's functionality. Resolving import errors is crucial for maintaining smooth software operation and uninterrupted development processes.
Physiology and chemistry of skin and pigmentation, hairs, scalp, lips and nail, Cleansing cream, Lotions, Face powders, Face packs, Lipsticks, Bath products, soaps and baby product,
Preparation and standardization of the following : Tonic, Bleaches, Dentifrices and Mouth washes & Tooth Pastes, Cosmetics for Nails.
Macroeconomics- Movie Location
This will be used as part of your Personal Professional Portfolio once graded.
Objective:
Prepare a presentation or a paper using research, basic comparative analysis, data organization and application of economic information. You will make an informed assessment of an economic climate outside of the United States to accomplish an entertainment industry objective.
Thinking of getting a dog? Be aware that breeds like Pit Bulls, Rottweilers, and German Shepherds can be loyal and dangerous. Proper training and socialization are crucial to preventing aggressive behaviors. Ensure safety by understanding their needs and always supervising interactions. Stay safe, and enjoy your furry friends!
3. ASSUMPTIONS OF PERFECT
COMPETITION
• Many independent firms
• Each seller is small relative to the whole market
• Homogeneous (identical) product
• Easy entry and exit (no barriers to entry)
4. Price Taking
The perfectly competitive firm is said to be a
price-taker, because it takes the market price
as given and has no control over the price.
Why?...
5. If the firm tried to charge a higher price, it
would lose all its business. Customers could
go elsewhere to buy the same product for less.
Since the firm is very small, it can sell as
much as it wants at the market price. So
there’s no reason to charge a lower price.
6. The demand curve for the product of the
perfectly competitive firm shows how much
can be sold at specific prices. Let’s see what
it would look like...
The firm can sell as little or as much as it
wants at the market price. Suppose, for
example, the market price is $5.
7. The firm can sell 10 units for $5.
price
$5
10
quantity
8. The firm can sell 20 units for $5.
price
$5
20
quantity
9. The firm can sell 30 units for $5.
price
$5
30
quantity
10. The firm can sell 40 units for $5.
price
$5
40
quantity
11. The firm can sell 50 units for $5.
price
$5
50
quantity
12. So all these points are on the demand
curve for the firm’s product.
price
$5
quantity
13. Connecting these points, we have the
demand curve for the firm’s product.
price
$5
demand
quantity
14. The demand curve for the perfectly
competitive firm’s product is a
horizontal line at the market price.
price
market price
demand
quantity
16. Recall: Marginal Revenue (MR)
Marginal Revenue is the additional revenue
earned from selling one additional unit of
output.
MR = ∆TR / ∆Q
17. comment
For ease of writing, instead of writing the
“perfectly competitive” firm we will
frequently write the “p.c.” firm.
18. The MR Curve
for the p.c. Firm
For the p.c. firm, MR is equal to the market price.
So MR is a horizontal line at the level of that price.
The demand curve for the p.c. firm is also a
horizontal line at the level of the market price. So,
for the p.c. firm, the demand curve and the MR
curve are the same horizontal line.
19. The demand curve (D) and the MR
curve for the perfectly competitive
firm’s product.
price
market price
D = MR
quantity
20. Optimal Output Level
Recall:
To maximize profit, the firm will produce at
the output level where MR = MC.
So the firm will produce where the MR and
MC curves intersect.
22. Draw your ATC, AVC, and MC curves. (Make sure
MC intersects ATC and AVC at the minimum.)
$
ATC
AVC
MC
Quantity
23. Draw the D = MR curve horizontal
at the market price.
$
D = MR
ATC
AVC
MC
Quantity
24. If the market price is P1 ,
the quantity produced will be Q1.
P1
$
D = MR
ATC
AVC
MC
Q1
Quantity
25. If the market price is P2 ,
the quantity produced will be Q2.
$
ATC
D = MR
P2
AVC
MC
Q2
Quantity
26. If the market price is P3 ,
the quantity produced will be Q3.
$
ATC
P3
AVC
D = MR
MC
Q3
Quantity
27. If the market price is P4 ,
the quantity produced will be Q4.
$
ATC
P4
AVC
D = MR
MC
Q4
Quantity
28. If the market price is P5 ,
the quantity produced will be Q5.
$
ATC
AVC
D = MR
P5
MC
Q5
Quantity
29. Price P5 was the minimum of the AVC curve
(the shutdown point). If the price fell any
lower than P5 the firm would produce no
output.
30. The p.c. firm’s short run supply curve
The firm’s supply curve shows the quantity the firm
will produce at each price.
The P, Q values we have shown, therefore, are
points on the firm’s supply curve.
But those points are all on the firm’s MC curve.
So, the firm’s supply curve is the part of the MC
curve that is above the minimum of the AVC curve.
31. The p.c. firm’s short run supply curve
Supply
$
ATC
AVC
MC
Quantity
32. The market short run supply curve
To determine the total amount that all the
firms will produce at each price, we simply
add up the amounts that each of the firms will
produce at that price.
37. To determine Total Cost, first remember
ATC = TC / Q
So, ATC . Q = TC
ATC
Now, if we can find a rectangle
whose length is ATC and whose
width is Q, then its area is TC.
TC
Q
38. Then to determine profit,
we just subtract the TC area from the TR area.
63. Constant Cost Industry
an industry in which costs of production remain
constant as output in the industry expands
64. Let’s start with the industry in long run equilibrium.
What is each firm’s economic profit (+, – , or 0)?
Zero.
That means that the price is at the minimum of the
ATC curve and is just sufficient to cover the cost
per unit of producing the good.
Next suppose that demand increases.
What happens to the price?
It increases.
65. If firms were just breaking even (zero economic profit) at
the old price, what will profit be at the new higher price?
It will be positive.
Does positive economic profit mean that the firms are
doing better, worse, or about the same as firms in other
industries are doing?
Better.
What is the nature of barriers to entry in perfect
competition?
There are no barriers to entry.
So we’ve got positive economic profit and no barriers to
entry. What will happen?
Firms will enter the industry.
66. What will happen to the supply of the product as new firms
enter the industry?
It will increase.
What happens to the price of the product?
It falls.
So the price goes back to where it was before the demand
change, but there is more output being produced by more
firms.
Note that if the price didn’t drop enough, there would still be
positive economic profits and firms would continue to enter
the industry, supply would keep increasing, and the price
would drop some more.
If the price dropped too much, it would not cover costs per
unit, and there would be losses. Firms would leave the
industry, supply would fall and the price would come back up
to just covering costs per unit.
67. So what has happened as a result of the increase
in demand in this constant cost industry?
We now have the same price we had before, but
we now have more output because we have more
firms in the industry.
So in a constant cost industry, firms will produce
as much or as little as the economy demands at a
price which is just enough to cover the cost per
unit.
68. That means that the long run supply curve in a
constant cost industry is horizontal.
Market
P
long run
supply curve
P1= P2
Q1
Q2
69. Increasing Cost Industry
an industry in which costs of production increase
as output in the industry expands
70. Let’s start again with the industry
in long run equilibrium.
What is each firm’s economic profit (+, – , or 0)?
Zero.
So the price is at the minimum of the ATC curve and is
just sufficient to cover the cost per unit of producing the
good.
Next suppose that demand increases.
What happens to the price?
It increases.
71. If firms were just breaking even (zero economic profit) at the
old price, what will happen to profit at the new higher price?
It will be positive.
Are the firms are doing better, worse, or about the same as
firms in other industries are doing?
Better.
What is the nature of the barriers to entry in perfect
competition?
There are no barriers to entry.
So we’ve got positive economic profit and no barriers to
entry. What will happen?
Firms will enter the industry.
72. What will happen to the supply of the product as
new firms enter the industry?
It will increase.
Before when we had a constant cost industry, the costs
remained the same as the industry expanded.
However, now we have an increasing cost industry. That
means that as the industry expands, it puts upward
pressure on the price of the inputs used in the industry
and the cost of production increases.
So visualize all the cost curves, including the ATC,
creeping up.
73. So the industry supply curve is shifting to the right,
and the ATC and other cost curves are creeping up.
As the supply increases, what happens to the price of the
product?
It falls.
But the price does not fall back to where it was before the
demand change, which was at the minimum of the old
ATC curve.
It only drops until we are back to zero economic profits
under the new conditions, which is at the bottom of the
new, higher, ATC curve.
74. So what has happened as a result of the increase
in demand in this increasing cost industry?
Supply expanded in response to the increased
profits resulting from the increase in demand.
However, costs increased so that we ended up
with a higher price that is just enough to cover
the new higher cost per unit.
75. That means that the long run supply curve in
an increasing cost industry is upward sloping.
Market
P
long run
supply curve
P2
P1
Q1
Q2 Q
77. Let’s start again with the industry
in long run equilibrium.
What is each firm’s economic profit (+, – , or 0)?
Zero.
So the price is at the minimum of the ATC curve and is
just sufficient to cover the cost per unit of producing the
good.
Next suppose that demand increases.
What happens to the price?
It increases.
78. If firms were just breaking even at the old price, what
will happen to profit at the new higher price?
It will be positive.
Are the firms are doing better, worse, or about the same
as firms in other industries are doing?
Better.
What is the nature of the barriers to entry in perfect
competition?
There are no barriers to entry.
So we’ve got positive economic profit and no barriers to
entry. What will happen?
Firms will enter the industry.
79. What will happen to the supply of the product as
new firms enter the industry?
It will increase.
Now we have a decreasing cost industry. That means
that as the industry expands and infrastructure
improves, the cost of production decreases.
So visualize all the cost curves, including the ATC,
sliding down.
80. So the industry supply curve is shifting to the right,
and the ATC and other cost curves are sliding down.
As the supply increases, what happens to the price of the
product?
It falls.
But the price does not fall back to where it was before the
demand change, which was at the minimum of the old
ATC curve.
It keeps dropping until we are back to zero economic
profits under the new conditions, which is at the bottom
of the new, lower, ATC curve.
81. So what has happened as a result of the increase
in demand in this decreasing cost industry?
Supply expanded in response to the increased
profits resulting from the increase in demand.
However, costs decreased so that we ended
up with a lower price that is just enough to
cover the new lower cost per unit.
82. That means that the long run supply curve in an
decreasing cost industry is downward sloping.
Market
P
P1
P2
long run
supply curve
Q1
Q2
Q
83. Good Things about Perfect Competition
• Costs are minimized.
Competition forces efficient operation. Inefficient firms
will have losses and be forced out of business.
• P = MC
The price (which comes from the demand curve) is the
amount that consumers value a good.
MC is the cost of producing an additional unit of a good.
So firms produce up to the point where the amount that
consumers value a good is equal to the amount it costs to
produce an additional unit of the good.