23 - 1 copyright mcgraw-hill/irwin, 2005 four market models demand as seen by a purely competitive...
TRANSCRIPT
![Page 1: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/1.jpg)
23 - 1Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Pure Competition
23C H A P T E R
![Page 2: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/2.jpg)
23 - 2Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Market Structure Continuum
FOUR MARKET MODELS
Pure Competition
![Page 3: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/3.jpg)
23 - 3Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Market Structure Continuum
PureCompetition
FOUR MARKET MODELS
Imperfect Competition
All Markets that areNot Purely Competitive
![Page 4: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/4.jpg)
23 - 4Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Market Structure Continuum
PureCompetition
FOUR MARKET MODELS
Pure Monopoly
![Page 5: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/5.jpg)
23 - 5Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Market Structure Continuum
PureCompetition
PureMonopoly
FOUR MARKET MODELS
Monopolistic Competition
![Page 6: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/6.jpg)
23 - 6Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Market Structure Continuum
PureCompetition
PureMonopoly
MonopolisticCompetition
FOUR MARKET MODELS
Oligopoly
![Page 7: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/7.jpg)
23 - 7Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Market Structure Continuum
PureCompetition
PureMonopoly
MonopolisticCompetition Oligopoly
FOUR MARKET MODELSPure Competition:• Very Large Numbers• Standardized Product• “Price Takers”• Free Entry and Exit
![Page 8: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/8.jpg)
23 - 8Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
DEMAND AS SEEN BY APURELY COMPETITIVE SELLER
Perfectly Elastic DemandPrice Taker Role
Total RevenueAverage Revenue
Marginal Revenue
For example...
![Page 9: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/9.jpg)
23 - 9Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
$131 0 $ 0
Product Price (P)(Average Revenue)
TotalRevenue (TR)
MarginalRevenue (MR)
QuantityDemanded (Q)
DEMAND AS SEEN BY APURELY COMPETITIVE SELLER
![Page 10: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/10.jpg)
23 - 10Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
$131 131
0 1
$ 0131
$131
Product Price (P)(Average Revenue)
TotalRevenue (TR)
MarginalRevenue (MR)
QuantityDemanded (Q)
DEMAND AS SEEN BY APURELY COMPETITIVE SELLER
]
![Page 11: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/11.jpg)
23 - 11Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
$131 131131
0 1 2
$ 0131262
$131131
Product Price (P)(Average Revenue)
TotalRevenue (TR)
MarginalRevenue (MR)
QuantityDemanded (Q)
DEMAND AS SEEN BY APURELY COMPETITIVE SELLER
]]
![Page 12: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/12.jpg)
23 - 12Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
$131 131131131
0 1 23
$ 0131262393
$131131131
Product Price (P)(Average Revenue)
TotalRevenue (TR)
MarginalRevenue (MR)
QuantityDemanded (Q)
DEMAND AS SEEN BY APURELY COMPETITIVE SELLER
]]]
![Page 13: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/13.jpg)
23 - 13Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
$131 131131131131
0 1 234
$ 0131262393524
$131131131131
Product Price (P)(Average Revenue)
TotalRevenue (TR)
MarginalRevenue (MR)
QuantityDemanded (Q)
DEMAND AS SEEN BY APURELY COMPETITIVE SELLER
]]]]
![Page 14: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/14.jpg)
23 - 14Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
$131 131131131131131131131131131131
0 1 23456789
10
$ 0131262393524655786917
104811791310
$131131131131131131131131131131
Product Price (P)(Average Revenue)
TotalRevenue (TR)
MarginalRevenue (MR)
QuantityDemanded (Q)
DEMAND AS SEEN BY APURELY COMPETITIVE SELLER
]]]]]]]]]]
![Page 15: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/15.jpg)
23 - 15Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
$131 131131131131131131131131131131
0 1 23456789
10
$ 0131262393524655786917
104811791310
$131131131131131131131131131131
Product Price (P)(Average Revenue)
TotalRevenue (TR)
MarginalRevenue (MR)
QuantityDemanded (Q)
DEMAND AS SEEN BY APURELY COMPETITIVE SELLER
]]]]]]]]]]
GraphicallyPresented…
![Page 16: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/16.jpg)
23 - 16Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
DEMAND, MARGINAL REVENUE, AND TOTALREVENUE IN PURE COMPETITION
TR
D = MR
1 2 3 4 5 6 7 8 9 10
1179
1048
917
786
655
524
393
262
131
0
Pri
ce
an
d r
ev
enu
e
Quantity Demanded (sold)
![Page 17: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/17.jpg)
23 - 17Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
SHORT-RUN PROFIT MAXIMIZATION
Two Approaches...First:Total-Revenue -Total Cost Approach
The Decision Rule:Produce in the short-run if it can realize
1- A profit (or)2- A loss less than its fixed costs
The Decision Process:•Should the firm produce?•What quantity should be produced?•What profit or loss will be realized?
![Page 18: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/18.jpg)
23 - 18Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
SHORT-RUN PROFIT MAXIMIZATION
Two Approaches...First:Total-Revenue -Total Cost Approach
The Decision Rule:Produce in the short-run if it can realize
1- A profit (or)2- A loss less than its fixed costs
The Decision Process:•Should the firm produce?•What quantity should be produced?•What profit or loss will be realized?
AppliedGraphically…
![Page 19: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/19.jpg)
23 - 19Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
TotalCost
0 1 23456789
10
TotalProduct
TotalFixedCost
TotalVariable
CostTotal
Revenue Profit
$ 100 100 100100100100100100100100100
$ 090
170240300370450540650780930
$ 100190270340400470550640750880
1030
Price: $131
- $100- 59
- 8+ 53
+ 124+ 185+ 236+ 277+ 298+ 299+ 280
TOTAL REVENUE-TOTAL COST APPROACH
$ 0131262393524655786917
104811791310
Can you see the
profit maxim
ization?
![Page 20: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/20.jpg)
23 - 20Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
TotalCost
0 1 23456789
10
TotalProduct
TotalFixedCost
TotalVariable
CostTotal
Revenue Profit
$ 100 100 100100100100100100100100100
$ 090
170240300370450540650780930
$ 100190270340400470550640750880
1030
Price: $131
- $100- 59
- 8+ 53
+ 124+ 185+ 236+ 277+ 298+ 299+ 280
TOTAL REVENUE-TOTAL COST APPROACH
$ 0131262393524655786917
104811791310
Graphing Total
Cost & Revenue
![Page 21: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/21.jpg)
23 - 21Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
$1,8001,7001,6001,5001,4001,3001,2001,1001,000 900 800 700 600 500 400 300 200 100 0
To
tal r
eve
nu
e a
nd
to
tal c
ost
TotalRevenue
TotalCost
MaximumEconomic
Profits$299
Break-Even Point(Normal Profit)
Break-Even Point(Normal Profit)
1 2 3 4 5 6 7 8 9 10 11 12 13 14
TOTAL REVENUE-TOTAL COST APPROACH
![Page 22: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/22.jpg)
23 - 22Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
SHORT-RUN PROFIT MAXIMIZATION
Two Approaches...First:Total-Revenue -Total Cost Approach
Three Characteristics of MR=MC Rule:• The rule applies only if producing
is preferred to shutting down• Rule applies to all markets• Rule can be restated P=MC
Second:Marginal-Revenue -Marginal Cost
Approach
MR = MC Rule
![Page 23: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/23.jpg)
23 - 23Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
AverageTotalCost
0 1 23456789
10
TotalProduct
AverageFixedCost
AverageVariable
Cost
Price =MarginalRevenue
TotalEconomicProfit/Loss
$100.00
50.00 33.3325.0020.0016.6714.2912.5011.1110.00
$90.0085.0080.0075.0074.0075.0077.1481.2586.6793.00
$190.00135.00113.33100.00
94.0091.6791.4393.7597.78
103.00
- $100- 59
- 8+ 53
+ 124+ 185+ 236+ 277+ 298+ 299+ 280
MARGINAL REVENUE-MARGINAL COST APPROACH
$ 131131131131131131131131131131
MarginalCost
90807060708090
110130150
Thesame profitmaximizing
result!
![Page 24: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/24.jpg)
23 - 24Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
AverageTotalCost
0 1 23456789
10
TotalProduct
AverageFixedCost
AverageVariable
Cost
Price =MarginalRevenue
TotalEconomicProfit/Loss
$100.00
50.00 33.3325.0020.0016.6714.2912.5011.1110.00
$90.0085.0080.0075.0074.0075.0077.1481.2586.6793.00
$190.00135.00113.33100.00
94.0091.6791.4393.7597.78
103.00
- $100- 59
- 8+ 53
+ 124+ 185+ 236+ 277+ 298+ 299+ 280
MARGINAL REVENUE-MARGINAL COST APPROACH
$ 131131131131131131131131131131
MarginalCost
90807060708090
110130150
Graphically
![Page 25: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/25.jpg)
23 - 25Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
$200
150
100
50
0
Co
st a
nd
Rev
enu
e
1 2 3 4 5 6 7 8 9 10
MC
MR
AVCATC
Economic Profit
$131.00
$97.78
MARGINAL REVENUE-MARGINAL COST APPROACH
Profit Maximization Position
![Page 26: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/26.jpg)
23 - 26Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
$200
150
100
50
0
Co
st a
nd
Rev
enu
e
1 2 3 4 5 6 7 8 9 10
MC
MR
AVCATC
Economic Profit
$131.00
$97.78
MARGINAL REVENUE-MARGINAL COST APPROACH
MR = MCOptimumSolution
Profit Maximization Position
![Page 27: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/27.jpg)
23 - 27Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
the MR=MC rule still applies
If the price is lowered from $131 to $81…
…but the MR = MC point changes.
MARGINAL REVENUE-MARGINAL COST APPROACH
Loss Minimization Position
![Page 28: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/28.jpg)
23 - 28Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
$200
150
100
50
0
Co
st a
nd
Rev
enu
e
1 2 3 4 5 6 7 8 9 10
MC
MRAVCATC
Economic Loss
$81.00$91.67
MARGINAL REVENUE-MARGINAL COST APPROACH
Loss Minimization Position
![Page 29: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/29.jpg)
23 - 29Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
$200
150
100
50
0
Co
st a
nd
Rev
enu
e
1 2 3 4 5 6 7 8 9 10
MC
MR
AVCATC
$71.00
MARGINAL REVENUE-MARGINAL COST APPROACH
Short-Run Shut Down Point
Minimum AVCis the Shut-Down
Point
![Page 30: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/30.jpg)
23 - 30Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
MARGINAL REVENUE-MARGINAL COST APPROACH
Marginal Cost & Short-Run Supply
PriceQuantitySupplied
Maximum Profit (+)Or Minimum Loss (-)
Observe the impact upon profitability as price is changed
$151 131 111 91 81 71 61
10987600
$+480+299
+138 -3
-64 -100 -100
![Page 31: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/31.jpg)
23 - 31Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Co
st a
nd
Rev
enu
e, (
do
llar
s) MC
MR1
AVC
ATC
MARGINAL REVENUE-MARGINAL COST APPROACH
Quantity Supplied
MR2
MR3
MR4
MR5
P1
P2
P3
P4
P5
Q2 Q3 Q4 Q5
Marginal Cost & Short-Run Supply
Do notProduce –
Below AVC
Break-even(Normal Profit)Point
![Page 32: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/32.jpg)
23 - 32Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Co
st a
nd
Rev
enu
e, (
do
llar
s)MC
MR1
MARGINAL REVENUE-MARGINAL COST APPROACH
Quantity Supplied
MR2
MR3
MR4
MR5
P1
P2
P3
P4
P5
Q2 Q3 Q4 Q5
Marginal Cost & Short-Run SupplyYields theShort-Run
Supply Curve
Supply
NoProductionBelow AVC
![Page 33: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/33.jpg)
23 - 33Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
MARGINAL REVENUE-MARGINAL COST APPROACH
Marginal Cost & Short-Run Supply
AVC2
MC2
Higher Costs Move theSupply Curve to the LeftC
ost
an
d R
even
ue,
(d
oll
ars)
MC1
AVC1
Quantity Supplied
S1
S2
![Page 34: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/34.jpg)
23 - 34Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
MARGINAL REVENUE-MARGINAL COST APPROACH
Marginal Cost & Short-Run Supply
AVC2
MC2
Lower Costs Movethe Supply Curve
to the Right
Co
st a
nd
Rev
enu
e, (
do
llar
s)MC1
AVC1
Quantity Supplied
S1
S2
![Page 35: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/35.jpg)
23 - 35Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
P
Q
S=MC
AVC
ATC
8
D
P
Q8000
D
S= MCs
IndustryFirm(price taker)
EconomicProfit
$111$111
SHORT-RUN COMPETITIVE EQUILIBRIUM
The Competitive Firm “Takes” itsPrice from the Industry Equilibrium
![Page 36: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/36.jpg)
23 - 36Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
P
Q
S=MC
AVC
ATC
8
D
P
Q8000
D
S= MCs
IndustryFirm(price taker)
EconomicProfit
$111$111
SHORT-RUN COMPETITIVE EQUILIBRIUM
The Competitive Firm “Takes” itsPrice from the Industry Equilibrium
How about thelong-run?
![Page 37: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/37.jpg)
23 - 37Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
PROFIT MAXIMIZATION IN THE LONG RUN
Assumptions...• Entry and Exit Only• Identical Costs• Constant-Cost IndustryGoal of the AnalysisPrice = Minimum ATCLong-Run Equilibrium - TheZero Economic Profit Model
![Page 38: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/38.jpg)
23 - 38Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Temporary profits and the reestablishmentof long-run equilibrium
S1
MCATC
P
Q100
P
Q100,000
IndustryFirm(price taker)
$60
50
40
$60
50
40
PROFIT MAXIMIZATION IN THE LONG RUN
MR
D1
![Page 39: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/39.jpg)
23 - 39Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
An increase in demand increases profits…
MR
D1
MCATC
P
Q100
P
Q100,000
IndustryFirm(price taker)
$60
50
40
$60
50
40
PROFIT MAXIMIZATION IN THE LONG RUN
D2
EconomicProfits
S1
![Page 40: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/40.jpg)
23 - 40Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
New competitors increase supply, and lowerprices decrease economic profits.
MR
D1
MCATC
P
Q100
P
Q100,000
IndustryFirm(price taker)
$60
50
40
$60
50
40
PROFIT MAXIMIZATION IN THE LONG RUN
D2
Zero EconomicProfits
S1
S2
![Page 41: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/41.jpg)
23 - 41Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Decreases in demand, losses, and the reestablishment of long-run equilibrium
S1
MCATC
P
Q100
P
Q100,000
IndustryFirm(price taker)
$60
50
40
$60
50
40
PROFIT MAXIMIZATION IN THE LONG RUN
D1
MR
![Page 42: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/42.jpg)
23 - 42Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
A decrease in demand creates losses…
MR
D1
MCATC
P
Q100
P
Q100,000
IndustryFirm(price taker)
$60
50
40
$60
50
40
PROFIT MAXIMIZATION IN THE LONG RUN
D2
EconomicLosses
S1
![Page 43: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/43.jpg)
23 - 43Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
MR
D1
MCATC
P
Q100
P
Q100,000
IndustryFirm(price taker)
$60
50
40
$60
50
40
PROFIT MAXIMIZATION IN THE LONG RUN
D2
Return to ZeroEconomic Profits
S1
S3
Competitors with losses decrease supply, andprices return to zero economic profits.
![Page 44: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/44.jpg)
23 - 44Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
LONG-RUN SUPPLY IN ACONSTANT COST INDUSTRY
Constant Cost Industry
Perfectly Elastic Long-Run Supply
Graphically...
![Page 45: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/45.jpg)
23 - 45Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
P
Q
=$50 S
D1
Z1
Q1
D2
Z2
Q2Q3
D3
Z3
100,000 110,00090,000
LONG-RUN SUPPLY IN ACONSTANT COST INDUSTRY
P1
P2
P3
![Page 46: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/46.jpg)
23 - 46Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
P
Q
=$50 S
D1
Z1
Q1
D2
Z2
Q2Q3
D3
Z3
100,000 110,00090,000
LONG-RUN SUPPLY IN ACONSTANT COST INDUSTRY
P1
P2
P3
How does an increasingcost industry differ?
![Page 47: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/47.jpg)
23 - 47Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
P
Q
$555045
S
D1
Y1
Q1
D2
Y2
Q2Q3
D3
Y3
100,000 110,00090,000
LONG-RUN SUPPLY IN ANINCREASING COST INDUSTRY
P1
P2
P3
![Page 48: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/48.jpg)
23 - 48Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
P
Q
$555045
S
D1
Y1
Q1
D2
Y2
Q2Q3
D3
Y3
100,000 110,00090,000
P1
P2
P3
How does adecreasing costindustry differ?
LONG-RUN SUPPLY IN ANINCREASING COST INDUSTRY
![Page 49: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/49.jpg)
23 - 49Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
P
Q
$555045
S
D1
Y1
Q1
D2
Y2
Q2Q3
D3
Y3
100,000 110,00090,000
P1
P2
P3
What is the long-run competitive
equilibrium?
LONG-RUN SUPPLY IN ANINCREASING COST INDUSTRY
![Page 50: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/50.jpg)
23 - 50Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
P MR
Q
MCATC
Quantity
Pri
ce
Price = MC = Minimum ATC(normal profit)
LONG-RUN EQUILIBRIUM FOR A COMPETITIVE FIRM
![Page 51: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/51.jpg)
23 - 51Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
PURE COMPETITION AND EFFICIENCY
Productive EfficiencyPrice = Minimum ATC
Allocative EfficiencyPrice = MC
UnderallocationPrice > MC
OverallocationPrice < MC
![Page 52: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/52.jpg)
23 - 52Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
PURE COMPETITION AND EFFICIENCY
Productive EfficiencyPrice = Minimum ATC
Allocative EfficiencyPrice = MC
UnderallocationPrice > MC
OverallocationPrice < MC
Resources are
efficiently allocated
under competition
![Page 53: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/53.jpg)
23 - 53Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
PURE COMPETITION AND EFFICIENCY
Productive EfficiencyPrice = Minimum ATC
Allocative EfficiencyPrice = MC
UnderallocationPrice > MC
OverallocationPrice < MC
ConsumerSurplus
![Page 54: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/54.jpg)
23 - 54Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
PURE COMPETITION AND EFFICIENCY
Productive EfficiencyPrice = Minimum ATC
Allocative EfficiencyPrice = MC
UnderallocationPrice > MC
OverallocationPrice < MC
![Page 55: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/55.jpg)
pure competition
pure monopoly
monopolistic competition
oligopoly
imperfect competition
price taker
average revenue
total revenue
marginal revenue
break-even point
MR = MC rule
short-run supply curve
long-run supply curve
constant-cost industry
increasing-cost industry
decreasing-cost industry
productive efficiency
allocative efficiency
ENDBACKCopyright McGraw-Hill/Irwin, Inc. 2005
![Page 56: 23 - 1 Copyright McGraw-Hill/Irwin, 2005 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue](https://reader036.vdocuments.site/reader036/viewer/2022062809/5697bfd71a28abf838cae8f8/html5/thumbnails/56.jpg)
23 - 56Copyright McGraw-Hill/Irwin, 2005
Four Market Models
Demand as seen by a Purely Competitive Seller
Short-Run Profit Maximization
Marginal Revenue – Marginal Cost Approach
Short-Run Competitive Equilibrium
Long-Run Supply
Long-Run Equilibrium for a Competitive Firm
Pure Competition and Efficiency
Key Terms
PreviousSlide
NextSlide
EndEndShowShow
Coming Next...
Pure Monopoly
Chapter 24