You are on page 1of 24

| 

|

  


@  


@  |  
@ 
 


  

@ |

  

@  
@ 
 !


 


@ "  #  
 $ %
@ &

  


 
'
(


'

)
 

@ | 




 

 (
 )
   


 

 
*)
 
 
(

  
)  ()



 (
(


 



@ |

  


@ 

@    


@ +
 |  

@ 


,| 




@  


,





*



)


, 





+

-. 
((| 

( ( ()


(
-/ 
((| (


(
( ( ()
(


(



|  
(0
 
(1*


,
s 
      
Marginal revenue is the increase in total revenue when
output sold goes up by one unit

Output Price Total Revenue Marginal Revenue


1 $5 $ 5 $5
2 5 10 5
3 5 15 5
4 5 20 5
5 5 25 5

6 5 30 5

Copyright X2002 by The McGraw-Hill Companies, Inc. All rights reserved. 21-3
s 
      

Output Price Total Revenue Marginal Revenue


1 $5 $ 5 $5 

2 5 10 5 

3 5 15 5 

4 5 20 5 

5 5 25 5 

6 5 30 5 


     
(  

Copyright X2002 by The McGraw-Hill Companies, Inc. All rights reserved. 21-4
Profit Maximization and Loss Minimization
(  

  
  
  
  
 
 
 

  !""# $

This occurs somewhere between 6 and 7 units.


We are assuming output can be produced in tenths of a unit

Copyright X2002 by The McGraw-Hill Companies, Inc. All rights reserved. 21-6
Profit Maximization and Loss Minimization

Output MR MC 

1 $200 $100

2 200 50
3 200 60 
4 200 90
5 200 130 




6 200 170
7 200 205 

  !""# $


      
"% ""# $ (  

The most profitable output is where the MC curve crosses the D, MR curve. This
occurs at an output of 6.7 units
Copyright X2002 by The McGraw-Hill Companies, Inc. All rights reserved. 21-7
 


@ |

  

  
(
  (  
)

 
  
  
  
  


)
( 
(


*
 
 

()

*

() 


" 
2  (


 
|

  

@ 
   
 
$ 
)

  
(
((
@ 
  
 ( 

 

@ 
   (

   
*
  (

@ 3 


 (

*


*


0


 
1


# 0-  1
@  )
(



   


0 ,| 1
 | ( &


@ 4*  
  
 (
)


'
 (  



@ 
 *  
 (



  
 
@ *
(  

 ( 
56
*




$  ,
|  *

 ,|
76
*

  , 



 *

 ,
The Perfect Competitor¶s Demand Curve

  


!

"

(   (  

The intersection of the industry supply and demand curve set the
price that is taken by the individual firm, in this case $6
Copyright X2002 by The McGraw-Hill Companies, Inc. All rights reserved. 22-6
The Perfect Competitor in the Short Run














        
(  

In the short run the perfect competitor may make a profit or lose
money
Copyright X2002 by The McGraw-Hill Companies, Inc. All rights reserved. 22-10
The Perfect Competitor in the Short Run
"

"

" "
(  

Is this firm making a profit or losing money?


Answer: Making a profit because the D,MR curve is above the ATC curve

Copyright X2002 by The McGraw-Hill Companies, Inc. All rights reserved. 22-13
" 
  (*&

@ 8
 


(


*(

 
(9
@ 3
 
   


  




 )



@ 3
  
  



  

 3





(: )
 





 )* ( 
 
( (
 
( 



 3



: )
 

   

( 

: )
 (

 ( (

  (*
 +| 
 | 

@ 3
 
 

  

 


   6
 
 
; <
 
@ "   | ) 
 * 


 
$ 3(   


, 
 ( (*
 

@ "   (

  


( $ 3(   


,

 ( (
 
  


$ |

 

&
(

@ -



(
(

 


   )
  

* 



  


@ -

(


(
( 
  






(
$   

  

  
 

( 
Going from Taking a Loss in the Short Run to
Breaking Even in the Long Run
 #$%

 

 

(   (     

This pushes the industry price up to $8. At this price the firm breaks even.

Copyright X2002 by The McGraw-Hill Companies, Inc. All rights reserved. 22-18
Going from Making a Profit in the Short Run to
Breaking Even in the Long Run
  
 
  
 

 

 

 


  


 

 

 

 


           
(   (     

ðew firms are attracted into the industry. This increases supply moving the
supply curve from S1 to S2

Copyright X2002 by The McGraw-Hill Companies, Inc. All rights reserved. 22-20
The Perfect Competitor in the Long Run

Price = ATC

The most profitable level of


output is 11.1

(  

In the long run the firm breaks even


The ATC curve is tangent to the demand curve at the point where MC = MR.
ATC will equal price at the break-even point (the minimum point on the ATC
curve) 22-22
Copyright X2002 by The McGraw-Hill Companies, Inc. All rights reserved.
"
"  
 &
 


@ "
"  
$ =  )
( #  
**
 
  




   

 0

(

1
 
  

@ "
&
 
$ =  )
( #
 *

   




 
0- 
3( 1
 


@ 

 
 
( 

* 

)

 ) 
) 

 
* 

" 
2>  
&
%

( (
 



@    

  
 )
    )
(

 ( 
 "  (

 (
   


 ( 0% (1
 -
   ) (

  

*


" 
2!


)
 



@ +
   )
   

(( 


( 
 | (  )

   
 

) ((



" 
2?(=@  
|