Scribd Logo
Upload

Welcome to Scribd!

  • Perfect Competition

    Uploaded by

    Nguyên Trần Khôi
    14 views5 pages
    This document summarizes the production decisions of a firm in perfect competition. It provides the cost functions and supply curve for the firm. When the market price is $67, the firm's optimal quantity is 10 units, earning a maximum profit of $108. The break-even point is at a quantity of 8 units and price of $55. When the price drops to $19, the firm continues operating at a loss to cover average costs, producing 2 units with a loss of $180. At the higher price of $67, the firm's producer surplus is $300, which is equal to its profit of $108 plus its fixed costs of $192.

    Original Description:

    Original Title

    Perfect competition

    Copyright

    © © All Rights Reserved

    Available Formats

    DOCX, PDF, TXT or read online from Scribd

    Did you find this document useful?

    Is this content inappropriate?

    Report this Document
    This document summarizes the production decisions of a firm in perfect competition. It provides the cost functions and supply curve for the firm. When the market price is $67, the firm's optimal quantity is 10 units, earning a maximum profit of $108. The break-even point is at a quantity of 8 units and price of $55. When the price drops to $19, the firm continues operating at a loss to cover average costs, producing 2 units with a loss of $180. At the higher price of $67, the firm's producer surplus is $300, which is equal to its profit of $108 plus its fixed costs of $192.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    14 views5 pages

    Perfect Competition

    Uploaded by

    Nguyên Trần Khôi
    This document summarizes the production decisions of a firm in perfect competition. It provides the cost functions and supply curve for the firm. When the market price is $67, the firm's optimal quantity is 10 units, earning a maximum profit of $108. The break-even point is at a quantity of 8 units and price of $55. When the price drops to $19, the firm continues operating at a loss to cover average costs, producing 2 units with a loss of $180. At the higher price of $67, the firm's producer surplus is $300, which is equal to its profit of $108 plus its fixed costs of $192.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Flag for inappropriate content
    of 5

    P

    MC
    ATC

    P1
    AVC

    P2

    P3

    P4

    Q3 Q2 Q1 Q

    + PMarket > ATCmin


    PMarket = MR = MC
    P1 => Q1 => Positive economic profit
    + PMarket = ATCmin
    PMarket = MR = MC
    P2 => Q2 => TR = TC => Zero economic profit
    Break-even point:
    TR = TC
    PMarket = ATCmin
    MC = ATC
    + AVCmin < Pmarket < ATCmin
    PMarket = MR = MC
    P3 => Q3 => Negative economic profit
    + Pmarket ≤ AVCmin
    Shut down

    * Producer surplus (PS) and profit

    MC = S
    ATC

    P1
    AVC

    0 Q1 Q

    Q1

    PS = P1*Q1 - ∫ MC . dQ
    0

    => PS = TR - TC ¿Q0 1= TR – [VC(Q1) + FC – FC]


    => PS = TR – VC
    Profit = TR – TC
    Profit = PS – FC => PS = Profit + FC
    A firm in perfect competition market has TC (USD) = 3Q2 + 7Q + 192,
    where Q is in units.
    1. What are the functions for AVC, MC and firm’s supply curve?
    2. When market price is 67$, what is the maximal profit of this firm?
    3. What are break-even quantity and price of this firm?
    4. When market price is 19$/unit, what is the firm’s decision?
    5. What is the firm’s producer surplus in question 2?

    Solution:
    1.
    VC = 3Q2 + 7Q
    FC = 192 USD
    MC = TC’Q = 6Q + 7
    AVC = VC/Q = 3Q + 7
    ATC = TC/Q = 3Q + 7 + 192/Q
    SFirm = MC with P > AVCmin
    P = MC
    SFirm: P = 6Q + 7 with P > 7

    P MC
    67
    ATC
    AVC

    55

    19

    2 8 10 Q

    2. PMarket = 67 USD
    PMarket = MR = MC
     67 = 6Q + 7
     Q = 10 units
     Profit = TR – TC = 67.10 – (3.102 + 7.10 + 192) = 108 USD
    3. Break – even
    + TR = TC
    + PMarket = ATCmin
    + MC = ATC
    MC = ATC
     6Q + 7 = 3Q + 7 + 192/Q
     QBE = 8 units
     PBE = 55 USD

    4. Pmarket = 19 USD
    AVCmin = 7 USD < Pmarket = 19 USD < ATCmin = 55 USD
     Continue to produce
    PMarket = MR = MC
     19 = 6Q + 7
     Q = 2 units
     Profit = TR – TC = - 180 USD
    5.
    PS = Profit + FC
    P = 67 USD => Profit = 108 USD
     PS = 108 + 192 = 300 USD

    You might also like