[Econ] PPT by Kittycolz -- Pure Competition McConnel 16th-19th Edition

PURE COMPETITION

© K I T T Y C O L Z

TR = P x Q

AR = TR/Q = P

MR = ΔTR / ΔQ = P


Firm’s Demand Schedule Firm’s Revenue Data

(1)

Product Price

(Average Revenue)

(2)

Quantity Demanded

(3)

Total Revenue

(TR),( I ) x (2)

(4)

Marginal Revenue

$131 0 $ 0 $131

131 1 131 131

131 2 262 131

131 3 393 131

131 4 524 131

131 5 655 131

131 6 786 131

131 7 917 131

131 8 1048 131

131 9 1179 131

131 10 1310 131

AVERAGE, TOTAL AND MARGINAL REVENUE


GRAPHIC PORTRAYAL

2 4 6 8 10 12

$1179

1048

917

786

655

524

393

262

131

0

Pr

ice

an

d R

ev

en

ue

Quantity Demanded

(sold)

TR

D = MR


TOTAL-REVENUE-TOTAL-COST APPROACH: PROFIT-MAXIMIZATION CASE

PRICE: $131

(1)

Total

Product

(2)

Total Fixed

Cost

(3)

Total Variable

Cost

(4)

Total Cost

(5)

Total Revenue

(6)

Profit (+)

Loss ( - )

0 $100 $ 0 $100 $ 0 $ -100

1 100 90 190 131 -59

2 100 170 270 262 -8

3 100 240 340 393 +53

4 100 300 400 524 +124

5 100 370 470 655 +185

6 100 450 550 786 +236

7 100 540 640 917 +277

8 100 650 750 1048 +298

9 100 780 880 1179 +299

10 100 930 1030 1310 +280


TR-TC APPROACH: $1800

1500

1200

900

600

300

0 1 2 3 4 5 6 7 8 9 10 11 12 13 14

TC

TR MAXIMUM

ECONOMIC

PROFIT

BREAK-EVEN POINT

(NORMAL PROFIT)

BREAK-EVEN POINT

(NORMAL PROFIT)

}

To

ta

l R

ev

en

ue

an

d T

ot

al

Co

st

Qd


0

TC TR

BREAK-EVEN POINT

(NORMAL PROFIT)

To

ta

l R

ev

en

ue

an

d T

ot

al

Co

st

Qd

TR-TC APPROACH:

300

1 2 3


200

100

400

300

500

TOTAL ECONOMIC PROFIT

$299

To

ta

l E

co

no

mic

Pr

of

it

Quantity demanded

1 2 3 4 5 6 7 8 9 10 11 12 13 14


MARGINAL-REVENUE-MARGINAL-COST APPROACH: PROFIT-MAXIMIZING

(1)

Total

Product

(Output)

(2)

Average

Fixed Cost

(AFC)

(3)

Average

Variable

Cost (AVC)

(4)

Average

Total Cost

(ATC)

(5)

Marginal

Cost (MC)

(6)

Price =

Marginal

Revenue (MR)

(7)

Total

Economic

Profit (+)

or Loss (-)

0 $90 $131 $-100

1 $100.00 $90.00 $190.00 80 131 -59

2 50.00 85.00 135.00 70 131 -8

3 33.33 80.00 113.33 60 131 +53

4 25.00 75.00 100.00 70 131 +124

5 20.00 74.00 94.00 80 131 +185

6 16.67 75.00 91.67 90 131 +236

7 14.29 77.14 91.43 110 131 +277

8 12.50 81.25 93.75 130 131 +298

9 11.11 86.67 97.78 150 131 +299

10 10.00 93.00 103.00 +280


$200

150

100

50

1 2 3 4 5 6 7 8 9 10

MR = P

AVC

ATC ECONOMIC PROFIT

MC

MR-MC APPROACH:

C

os

t a

nd

Re

ve

nu

e

Output

P= $131

A= $97.78


MARGINAL-REVENUE-MARGINAL-COST APPROACH: LOSS-MINIMIZING

PRICE: $81 PRICE: $71

(1)

Total

Product

(Output)

(2)

Average

Fixed Cost

(AFC)

(3)

Average

Variable

Cost

(AVC)

(4)

Average

Total Cost

(ATC)

(5)

Marginal

Cost

(MC)

(6)

Marginal

Revenue

(MR)

(7)

Profit(+)

or

Loss (-)

(8)

Marginal

Revenue

(MR)

(7)

Profit(+)

or

Loss (-)

0 $90 $81 $-100 $71 $-100

1 $100.00 $90.00 $190.00 80 81 -109 71 -119

2 50.00 85.00 135.00 70 81 -108 71 -128

3 33.33 80.00 113.33 60 81 -97 71 -127

4 25.00 75.00 100.00 70 81 -76 71 -116

5 20.00 74.00 94.00 80 81 -65 71 -115

6 16.67 75.00 91.67 90 81 -64 71 -124

7 14.29 77.14 91.43 110 81 -73 71 -143

8 12.50 81.25 93.75 130 81 -102 71 -182

9 11.11 86.67 97.78 150 81 -151 71 -241

10 10.00 93.00 103.00 -220 71 -320


$200

150

100

50

1 2 3 4 5 6 7 8 9 10

MR = P

AVC

ATC

MC

MR-MC APPROACH:

ECONOMIC LOSS

Co

st

an

d R

ev

en

ue

Output

A = $91.67

P = $81

V = $75


$200

150

100

50

1 2 3 4 5 6 7 8 9 10

MR = P

MC

AVC

ATC

Co

st

an

d R

ev

en

ue

Output

P = $71


Price Quantity

Supplied

Maximum Profit (+)

or

Minimum Loss (-)

$151 10 $+480

131 9 +299

111 8 +138

91 7 -3

81 6 -64

71 0 -100

61 0 -100


a

b

c

d

e P5

P4

P3

P2

P1

ATC

AVC

MC

MR5

MR4

MR3

MR2

MR1

Co

st

s a

nd

re

ve

nu

es

(d

ol

la

rs

)

QS Q2 Q3 Q4 Q5


(1)

Quantity

Supplied,

Single Firm

(2)

Total Quantity

Supplied, 1000

Firms

(3)

Product Price

(4)

Total Quantity

Demanded

10 10,000 $151 4000

9 9000 131 6000

8 8000 111 8000

7 7000 91 9000

6 6000 81 11,000

0 0 71 13,000

0 0 61 16,000


MC

ATC

AVC

D

S = ∑ MC’s

$111

8

$111

8000

SINGLE FIRM INDUSTRY


MC

ATC

MR

D1

S1

$60

100 90,000

D2

S2

50

40

$60

50

40

MR

100,000 110,000



MC

ATC

D3

S3

$60

900 90,000

D1

S1

50

40

$60

50

40

100,000



$50 Z3 Z1 Z2

S

D3 D1

D2

Q3 Q1 Q2

90,000 100,000 110,000

P1

P2

P3


D3 D1 D2

P2

P1

P3

$55

50

45

Y3 Y1

Y2

S

Q3 Q1 Q2

90,000 100,000 110,000


D3 D1 D2

P2

P1

P3

$55

50

45

Y3

Y1

Y2

S

Q3 Q1 Q2

90,000 100,000 110,000


MC

ATC

MR

P=MC = minimum ATC

(normal profit)

P

Q 0


S

D PRODUCER SURPLUS

P

Q 0

CONSUMERSURPLUS


PURE COMPETITION AND EFFICIENCY

P = Minimum ATC


PURE COMPETITION AND EFFICIENCY

P = MC


P = MC defines ALLOCATIVE EFFICIENCY:


[Econ] PPT by Kittycolz -- Pure Competition McConnel 16th-19th Edition

Education

Transcript of [Econ] PPT by Kittycolz -- Pure Competition McConnel 16th-19th Edition