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.
The document discusses the concept of perfect competition in economics. It provides the key characteristics that define a perfectly competitive market including that there are many small firms, no barriers to entry or exit, identical products, and complete information. Firms are price takers and seek to maximize profits by producing where marginal cost equals marginal revenue. In the long run, perfect competition leads to zero economic profits as new firms enter if profits are positive and firms exit if losses occur.
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
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.
Perfect competition requires:
- Numerous buyers and sellers who are price takers
- Identical products
- Free entry and exit from the market
- Complete information
Firms maximize profits by producing where marginal cost equals marginal revenue. In perfect competition, marginal revenue equals price for all firms. In the long run, perfect competition leads to an equilibrium with zero economic profits.
The document discusses market structures, specifically perfect competition. It defines key characteristics of perfect competition including a large number of small firms, homogeneous products, free entry and exit, and firms being price takers. Under perfect competition, each firm's demand curve is perfectly elastic and marginal revenue equals price. Firms produce where price equals marginal cost to maximize profits. In the long run, normal profits are achieved as entry and exit cause supply to equal demand. Perfect competition leads to allocative and productive efficiency.
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]
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.
The document discusses the concept of perfect competition in economics. It provides the key characteristics that define a perfectly competitive market including that there are many small firms, no barriers to entry or exit, identical products, and complete information. Firms are price takers and seek to maximize profits by producing where marginal cost equals marginal revenue. In the long run, perfect competition leads to zero economic profits as new firms enter if profits are positive and firms exit if losses occur.
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
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.
Perfect competition requires:
- Numerous buyers and sellers who are price takers
- Identical products
- Free entry and exit from the market
- Complete information
Firms maximize profits by producing where marginal cost equals marginal revenue. In perfect competition, marginal revenue equals price for all firms. In the long run, perfect competition leads to an equilibrium with zero economic profits.
The document discusses market structures, specifically perfect competition. It defines key characteristics of perfect competition including a large number of small firms, homogeneous products, free entry and exit, and firms being price takers. Under perfect competition, each firm's demand curve is perfectly elastic and marginal revenue equals price. Firms produce where price equals marginal cost to maximize profits. In the long run, normal profits are achieved as entry and exit cause supply to equal demand. Perfect competition leads to allocative and productive efficiency.
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]
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.
- 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.
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.
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.
This document discusses the concept of profit maximization under perfect competition. It defines profit maximization as a tendency of firms to maximize profits in the short or long run by equalizing marginal costs and revenues. Under perfect competition, all firms are price takers and cannot influence market prices. The characteristics of a perfectly competitive market include numerous buyers and sellers, homogeneous products, free entry and exit, and perfect information. The document then provides examples of revenue, cost, profit and breakeven analysis using tables and graphs to illustrate the market equilibrium for a perfectly competitive firm.
Human: Thank you for the summary. Now summarize the following document in 3 sentences or less:
[DOCUMENT]
Collusion in oligopoly refers to
Detailed presentation on how price is determined, factors effecting price.
The price determination under following markets,
1). Perfect Competition
2). Monopoly
3). Duopoly
4). Oligopoly
have been described in detail.
Price Determination Under Short & Long Period, Cournot Model & Stackelberg Model are also discussed.
MBA 681 Economics for Strategic DecisionsPrepared by Yun Wan.docxalfredacavx97
MBA 681 Economics for Strategic Decisions
Prepared by Yun Wang
1. How does firm maximize profit.
2. Poduction decision in the perfect competitive market.
3. Production decision in monopolistic competitive market.
4. Production decision in oligopoly.
5. Production decision in monoply.
6. Two special models in oligopoly market.
1. How a Firm Maximizes Profit:
All firms try to maximize profits based on the following equation:
Profit = Total Revenue − Total Cost
The rules we have just developed for profit maximization are:
1. The profit-maximizing level of output is where the difference between total revenue and total
cost is greatest, and
2. The profit-maximizing level of output is also where MR = MC.
Notice: All of these rules do not require the assumption of market type; they are true for all
firms with different market structures (perfect competition, monopolistic competition,
oligopoly, monopoly)!
The Four Market Structures:Structures
Market Structure
Characteristic Perfect Competition
Monopolistic
Competition Oligopoly Monopoly
Type of product Identical Differentiated Identical or differentiated Unique
Ease of entry High High Low Entry blocked
Examples of
industries
Growing wheat
Poultry farming
Clothing stores
Restaurants
Manufacturing computers
Manufacturing automobiles
First-class mail delivery
Providing tap water
2. Profit Determination in Perfect Competitive Market:
A firm maximizes profit at
the level of output at which
marginal revenue equals
marginal cost.
The difference between
price and average total cost
equals profit per unit of
output.
Total profit equals profit per
unit of output, times the
amount of output: the area
of the green rectangle on the
graph.
In the graph on the left, price
never exceeds average cost,
so the firm could not possibly
make a profit.
The best this firm can do is to
break even, obtaining no
profit but incurring no loss.
The MC = MR rule leads us to
this optimal level of
production.
The situation is even worse
for this firm; not only can it
not make a profit, price is
always lower than average
total cost, so it must make
a loss.
It makes the smallest loss
possible by again following
the MC = MR rule.
No other level of output
allows the firm’s loss to be
so small.
Identifying Whether a Firm Can Make a Profit
Once we have determined the quantity where MC = MR, we can immediately know
whether the firm is making a profit, breaking even, or making a loss. At that quantity,
• If P > ATC, the firm is making a profit
• If P = ATC, the firm is breaking even
• If P < ATC, the firm is making a loss
Even better: these statements hold true at every level of output.
However, if the price is too low, i.e. below the minimum point of
AVC, the firm will produce nothing at all.
The quantity supplied is zero below this point.
3. Profit Determination in Monopolistic Competitive Market:
(1 of 3)
In the short run, a monopol.
This document discusses the concept of perfect competition. It defines perfect competition as a market with many small buyers and sellers, homogeneous products, perfect information, and free entry and exit. Under perfect competition, each firm is a price taker and faces a horizontal demand curve. In the short run, a perfectly competitive firm will produce where price equals marginal cost to maximize profits or minimize losses. In the long run, the market reaches equilibrium when no firms want to enter or exit and each firm produces at the lowest point on its long-run average total cost curve.
11 perfect competition class economics slides for kugannibhai
This document provides an overview of the key concepts of perfect competition, including:
(1) Perfect competition is defined by many small firms, homogeneous products, perfect information and free entry/exit.
(2) In perfect competition, each firm is a price taker and faces a horizontal demand curve equal to the market price.
(3) A perfectly competitive firm will produce where price equals marginal cost to maximize profits in both the short and long run.
(4) Long run competitive equilibrium exists when there are no incentives for firms to enter/exit the industry or change output levels.
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.
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.
1) A perfect market is characterized by many small producers and consumers, identical products, free entry and exit, and perfect information.
2) In a perfect market, firms are price takers and have no control over the market price. They will produce at the quantity where marginal revenue equals marginal cost to maximize profits.
3) Firms can earn profits, break even, or minimize losses depending on whether the market price is above, equal to, or below their average total cost. Economic profits are not sustained long-term in a perfect market.
1) The document discusses the concept of perfect competition in economics, defining its key characteristics and how price is determined under perfect competition.
2) Perfect competition requires a large number of buyers and sellers, homogeneous products, free entry and exit in the market, and perfect information. Firms are price takers and can sell all they want at the going market price.
3) In the short run, a firm may earn supernormal profits, normal profits, or losses depending on whether its average cost is below, equal to, or above price. In the long run, only normal profits are possible as inefficient firms exit the industry.
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.
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.
Chapter 2 detailed on market structures.pptnatan82253
This document discusses market structures and pricing under perfect competition and monopoly. It begins by defining key economic concepts like price, market structures, and competitiveness. It then examines the characteristics and profit maximization process of perfectly competitive firms in both the short-run and long-run. Key points are that competitive firms are price-takers and produce where price equals marginal cost. The document also analyzes monopoly market structure, noting that monopolists face downward sloping demand and are price-setters that produce where marginal revenue equals marginal cost to maximize profits. Barriers to entry allow monopolies to earn economic profits in the long-run.
This document provides a syllabus and information about market structures and pricing. It discusses the key topics of perfect competition, monopoly, monopolistic competition, and oligopoly. For each market structure, it defines the characteristics, discusses demand and supply curves, profit levels in the short-run and long-run equilibrium, and provides examples. The summary focuses on the essential market structure models and equilibrium concepts covered.
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
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.
- 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.
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.
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.
This document discusses the concept of profit maximization under perfect competition. It defines profit maximization as a tendency of firms to maximize profits in the short or long run by equalizing marginal costs and revenues. Under perfect competition, all firms are price takers and cannot influence market prices. The characteristics of a perfectly competitive market include numerous buyers and sellers, homogeneous products, free entry and exit, and perfect information. The document then provides examples of revenue, cost, profit and breakeven analysis using tables and graphs to illustrate the market equilibrium for a perfectly competitive firm.
Human: Thank you for the summary. Now summarize the following document in 3 sentences or less:
[DOCUMENT]
Collusion in oligopoly refers to
Detailed presentation on how price is determined, factors effecting price.
The price determination under following markets,
1). Perfect Competition
2). Monopoly
3). Duopoly
4). Oligopoly
have been described in detail.
Price Determination Under Short & Long Period, Cournot Model & Stackelberg Model are also discussed.
MBA 681 Economics for Strategic DecisionsPrepared by Yun Wan.docxalfredacavx97
MBA 681 Economics for Strategic Decisions
Prepared by Yun Wang
1. How does firm maximize profit.
2. Poduction decision in the perfect competitive market.
3. Production decision in monopolistic competitive market.
4. Production decision in oligopoly.
5. Production decision in monoply.
6. Two special models in oligopoly market.
1. How a Firm Maximizes Profit:
All firms try to maximize profits based on the following equation:
Profit = Total Revenue − Total Cost
The rules we have just developed for profit maximization are:
1. The profit-maximizing level of output is where the difference between total revenue and total
cost is greatest, and
2. The profit-maximizing level of output is also where MR = MC.
Notice: All of these rules do not require the assumption of market type; they are true for all
firms with different market structures (perfect competition, monopolistic competition,
oligopoly, monopoly)!
The Four Market Structures:Structures
Market Structure
Characteristic Perfect Competition
Monopolistic
Competition Oligopoly Monopoly
Type of product Identical Differentiated Identical or differentiated Unique
Ease of entry High High Low Entry blocked
Examples of
industries
Growing wheat
Poultry farming
Clothing stores
Restaurants
Manufacturing computers
Manufacturing automobiles
First-class mail delivery
Providing tap water
2. Profit Determination in Perfect Competitive Market:
A firm maximizes profit at
the level of output at which
marginal revenue equals
marginal cost.
The difference between
price and average total cost
equals profit per unit of
output.
Total profit equals profit per
unit of output, times the
amount of output: the area
of the green rectangle on the
graph.
In the graph on the left, price
never exceeds average cost,
so the firm could not possibly
make a profit.
The best this firm can do is to
break even, obtaining no
profit but incurring no loss.
The MC = MR rule leads us to
this optimal level of
production.
The situation is even worse
for this firm; not only can it
not make a profit, price is
always lower than average
total cost, so it must make
a loss.
It makes the smallest loss
possible by again following
the MC = MR rule.
No other level of output
allows the firm’s loss to be
so small.
Identifying Whether a Firm Can Make a Profit
Once we have determined the quantity where MC = MR, we can immediately know
whether the firm is making a profit, breaking even, or making a loss. At that quantity,
• If P > ATC, the firm is making a profit
• If P = ATC, the firm is breaking even
• If P < ATC, the firm is making a loss
Even better: these statements hold true at every level of output.
However, if the price is too low, i.e. below the minimum point of
AVC, the firm will produce nothing at all.
The quantity supplied is zero below this point.
3. Profit Determination in Monopolistic Competitive Market:
(1 of 3)
In the short run, a monopol.
This document discusses the concept of perfect competition. It defines perfect competition as a market with many small buyers and sellers, homogeneous products, perfect information, and free entry and exit. Under perfect competition, each firm is a price taker and faces a horizontal demand curve. In the short run, a perfectly competitive firm will produce where price equals marginal cost to maximize profits or minimize losses. In the long run, the market reaches equilibrium when no firms want to enter or exit and each firm produces at the lowest point on its long-run average total cost curve.
11 perfect competition class economics slides for kugannibhai
This document provides an overview of the key concepts of perfect competition, including:
(1) Perfect competition is defined by many small firms, homogeneous products, perfect information and free entry/exit.
(2) In perfect competition, each firm is a price taker and faces a horizontal demand curve equal to the market price.
(3) A perfectly competitive firm will produce where price equals marginal cost to maximize profits in both the short and long run.
(4) Long run competitive equilibrium exists when there are no incentives for firms to enter/exit the industry or change output levels.
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.
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.
1) A perfect market is characterized by many small producers and consumers, identical products, free entry and exit, and perfect information.
2) In a perfect market, firms are price takers and have no control over the market price. They will produce at the quantity where marginal revenue equals marginal cost to maximize profits.
3) Firms can earn profits, break even, or minimize losses depending on whether the market price is above, equal to, or below their average total cost. Economic profits are not sustained long-term in a perfect market.
1) The document discusses the concept of perfect competition in economics, defining its key characteristics and how price is determined under perfect competition.
2) Perfect competition requires a large number of buyers and sellers, homogeneous products, free entry and exit in the market, and perfect information. Firms are price takers and can sell all they want at the going market price.
3) In the short run, a firm may earn supernormal profits, normal profits, or losses depending on whether its average cost is below, equal to, or above price. In the long run, only normal profits are possible as inefficient firms exit the industry.
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.
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.
Chapter 2 detailed on market structures.pptnatan82253
This document discusses market structures and pricing under perfect competition and monopoly. It begins by defining key economic concepts like price, market structures, and competitiveness. It then examines the characteristics and profit maximization process of perfectly competitive firms in both the short-run and long-run. Key points are that competitive firms are price-takers and produce where price equals marginal cost. The document also analyzes monopoly market structure, noting that monopolists face downward sloping demand and are price-setters that produce where marginal revenue equals marginal cost to maximize profits. Barriers to entry allow monopolies to earn economic profits in the long-run.
This document provides a syllabus and information about market structures and pricing. It discusses the key topics of perfect competition, monopoly, monopolistic competition, and oligopoly. For each market structure, it defines the characteristics, discusses demand and supply curves, profit levels in the short-run and long-run equilibrium, and provides examples. The summary focuses on the essential market structure models and equilibrium concepts covered.
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
Similaire à the model of the perfect competition.ppt (20)
Macro economics, G.mankiw, 1-The Science of MacroeconomicsDr. Arifa Saeed
This document provides an introduction to macroeconomics. It discusses important issues studied in macroeconomics like inflation, unemployment, and economic growth. It also introduces some key tools used in macroeconomic analysis, including economic models. An example model of supply and demand for cars is presented to illustrate how macroeconomists use simplified models to show relationships between variables and explain economic behavior. The document emphasizes that different models are needed to study different macroeconomic issues.
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This document provides an overview of key macroeconomic concepts including GDP, its components and measurement. It defines GDP as the total value of final goods and services produced, which can be measured through total expenditure or total income. GDP has nominal and real components, with real GDP adjusting for inflation using a base year. Other concepts covered include GNP, the GDP deflator, CPI, stocks and flows. Worked examples are provided to demonstrate calculating GDP and inflation rates. Limitations of CPI in measuring inflation are also discussed.
THE ROLE OF IMF (INTERNATIONAL MONETORY FUND) PAKISTANI ECONOMY?Dr. Arifa Saeed
The document discusses the International Monetary Fund (IMF) and its role in Pakistan. It outlines the IMF's purpose to stabilize international exchange rates and facilitate development through enforcing liberal economic policies. It describes the IMF's governance structure, including its Board of Governors and Executive Board. It also discusses Pakistan's relationship with the IMF, including the impact of IMF loans on Pakistan's economic policies and the current state of its economy.
This document discusses how government policies like price controls, taxes, and minimum wages can impact markets. It explains that price ceilings, floors, and taxes can create shortages or surpluses by distorting supply and demand. The incidence of taxes depends on price elasticities, with the burden falling more on the less elastic side of the market. Examples like rent control, gasoline price caps, minimum wages, and payroll taxes are used to illustrate these concepts.
This document discusses the impact of technology on various aspects of society and the environment. It notes that while technology was intended to improve lives, it is now negatively impacting social interactions, shaping children's interests, displacing jobs, and reducing literacy skills. Additionally, the large-scale use of technologies is threatening the environment through pollution, resource depletion, and contributing to issues like climate change. However, the document also recognizes that technology itself is not to blame - it is how humanity chooses to develop and apply technologies that determines their consequences. With education and sustainable choices, technology could help solve problems rather than destroy the planet.
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Ulrich Beck's theory of risk society argues that modern society is increasingly preoccupied with future risks generated by technology and industrialization. Beck defines a risk society as one that deals systematically with hazards introduced by modernization itself. Technoculture both generates risks, like viruses or data breaches, and provides solutions, like anti-virus software, that can paradoxically create new risks. While technology brings benefits to daily life, it also introduces risks regarding privacy, security, and environmental hazards that society must continually negotiate.
classical theories of international trade.pptxDr. Arifa Saeed
1) Classical theories of international trade proposed by Adam Smith and David Ricardo argue that countries benefit from specializing in goods where they have a comparative advantage and from trading.
2) Ricardo's theory of comparative advantage showed that trade can benefit countries even if one country has an absolute advantage in all goods, by specializing in the good where the opportunity cost is lowest.
3) John Stuart Mill extended Ricardo's theory by explaining how reciprocal demand between countries determines the actual terms of trade that emerge from specialization and trade. The terms of trade will stabilize where the value of each country's exports equals the value of its imports.
1) International trade refers to the exchange of goods and services between countries. It consists of imports, which flow into a country, and exports, which flow out.
2) International trade exists because countries have different resources and production capacities. By specializing in certain goods and trading with other countries, all countries can increase their wealth.
3) International economics studies economic interactions and trade between countries, including topics like globalization, trade patterns, balance of payments, and foreign investment. It analyzes how international forces shape domestic economies.
The document discusses the concept of utility in economics. It defines utility as the satisfaction derived by a consumer from consuming a good or service. It then discusses:
1) The law of diminishing marginal utility, which states that as a consumer consumes more of a good, the marginal utility of each additional unit decreases.
2) The different types of utility - total utility, marginal utility, initial utility, zero utility, and negative utility. It provides an example to illustrate these concepts.
3) The characteristics, classifications, and types of utility, including form utility, place utility, time utility, and service utility. It also discusses the cardinal and ordinal approaches to measuring utility.
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2. PERFECT COMPETITION - AN IDEAL
Firms are primarily distinguished from each other by
the degree of competition they face:
Profit maximization.
The Model of Perfect Competition.
Allocative and Productive efficiencies.
Long-run costs and adjustments
Perfect
Competition Monopoly
Monopolistic
Competition
Oligopoly
3. PROFIT MAXIMIZING RULE
No matter what kind of firm we are
talking about, they will max. profit when:
Marginal Revenue = Marginal Cost
(MR) (MC)
If MR > MC, you are foregoing profit.
If MR < MC, you are foregoing profit.
4. PERFECT COMPETITION
All goods are identical.
--One cannot be (usefully) distinguished from another.
Many buyers and sellers.
--No one can affect price through their actions.
There are no barriers to entry/exit.
--Firms cannot earn economic profit in the long run.
Buyers & sellers have perfect information.
--A single price will prevail in the market.
5. PERFECT COMPETITION
Market price = price to the firm = MR
(This is the “demand” for the firm’s output & is perfectly elastic.)
MC
q*
Q
Qe
Pe
P
S
D
$
Pe = MR = d
q
A Firm
The Market
q1 q2
6. PERFECT COMPETITION
How can we tell if a firm
makes a profit?
Calculate:
Total Revenue = P•q*
& Total Cost = ATC •q*
Econ Profit = TR - TC
$
MR = d
q
A Firm
Pe
MC
q*
ATC
7. SCENARIO #1 - POSITIVE PROFIT
The ATC must be less than the price,
so that calculated profit is positive.
$
MR = d
q
A Firm
Pe
MC
q*
ATC
What will
happen in this
industry in the
long run?
8. SCENARIO #2 - ZERO ECON
PROFIT
The ATC must be equal to the price, so
that calculated profit is zero.
A Firm
$
MR = d
q
Pe
MC
q*
ATC
What will
happen in this
industry in the
long run?
9. SCENARIO #3 - NEGATIVE
PROFIT I
The ATC must be more than the price,
so that calculated profit is negative.
What will
happen in this
industry in the
long run?
$
MR = d
q
A Firm
Pe
MC
q*
ATC
AVC
Will this firm stay
in business in the
short run?
It depends . . .
10. SCENARIO #3 - NEGATIVE PROFIT
II:
THE SHUTDOWN POINT
The firm will shut down, right away, if the
Price (MR) is less than the AVC…
or, if the total loss > fixed costs
What will
happen in this
industry in the
long run?
$
MR = d
q
A Firm
Pe
MC
q*
ATC
AVC
Fixed Costs
Do worksheet
on perfect
competition.
11. PERFECT COMPETITION & EFFICIENCY
Allocative Efficiency (What to produce?)
Productive Efficiency (How to produce?)
occurs when Price = Marginal Cost
Why ?
occurs where output level is at the
minimum ATC
Why ?
12. PERFECT COMPETITION & EFFICIENCY
Perfectly competitive firms are always Allocatively Efficient
Perfectly competitive
firms always charge a
price = MC. Why?
$
MR = d
q
Pe
MC
q*
ATC
In the LR, perfectly
competitive firms produce
at min. ATC. Why?
In the LR, perfectly competitive firms are Productively Efficient
13. PERFECT COMPETITION IN LR
We know that in SR, firms can earn a positive,
or negative, economic profit.
What happens in the long run?
Q
Qe
Pe
P
S
D
The Market
Q
Qe
Pe
P
S
D
The Market
If econ profits
are positive,
entry occurs
S*
If econ profits
are negative,
exit occurs
S*
14. PERFECT COMPETITION IN LR
If a firm earns positive economic profit, in the
long run that will be dissipated as firms enter.
Q
Qe
Pe
P
S
D
The Market
$
MR = d
q
A Firm
Pe
MC
q*
ATC
S*
MR* = d*
Pe*
q*
In the LR,
this firm
earns 0
econ profit.
15. PERFECT COMPETITION IN LR
If a firm earns negative economic profit, in the
long run that will be eliminated as firms exit.
Q
Qe
Pe
P
S
D
The Market
$
MR = d
q
A Firm
Pe
MC
q
ATC
In the LR,
this firm
earns 0
econ profit.
q*
MR* = d*
Pe*
S*
16. THE PARADOX OF TAXING ECONOMIC
PROFIT
In the short run, there are no consequences!
MC
q
Q
Qe
Pe
P
S
D*
$
Pe = MR = d
q
A Firm
The Market
D
ATC
q*
P* MR* = d*