firm supply
Download
Skip this Video
Download Presentation
Firm Supply

Loading in 2 Seconds...

play fullscreen
1 / 21

Firm Supply - PowerPoint PPT Presentation


  • 175 Views
  • Uploaded on

Firm Supply. Molly W. Dahl Georgetown University Econ 101 – Spring 2008. Market Environments. Perfect Competition Many buyers & sellers A firm in a perfectly competitive market knows it has no influence over the market price for its product. The firm is a market price-taker .

loader
I am the owner, or an agent authorized to act on behalf of the owner, of the copyrighted work described.
capcha
Download Presentation

PowerPoint Slideshow about 'Firm Supply' - britain


An Image/Link below is provided (as is) to download presentation

Download Policy: Content on the Website is provided to you AS IS for your information and personal use and may not be sold / licensed / shared on other websites without getting consent from its author.While downloading, if for some reason you are not able to download a presentation, the publisher may have deleted the file from their server.


- - - - - - - - - - - - - - - - - - - - - - - - - - E N D - - - - - - - - - - - - - - - - - - - - - - - - - -
Presentation Transcript
firm supply

Firm Supply

Molly W. Dahl

Georgetown University

Econ 101 – Spring 2008

market environments
Market Environments
  • Perfect Competition
    • Many buyers & sellers
    • A firm in a perfectly competitive market knows it has no influence over the market price for its product. The firm is a marketprice-taker.
the firm s short run supply decision
The Firm’s Short-Run Supply Decision
  • Each firm is a profit-maximizer and in a short-run.
  • Q: How does each firm choose its output level?
the firm s short run supply decision4
The Firm’s Short-Run Supply Decision
  • Each firm is a profit-maximizer and in a short-run.
  • Q: How does each firm choose its output level?
  • A: By solving
the firm s short run supply decision5
The Firm’s Short-Run Supply Decision

For the interior case of ys* > 0, the first-order maximum profit condition is

That is,

So at a profit maximum with ys* > 0, themarket price p equals the marginalcost of production at y = ys*.

the firm s short run supply decision6
The Firm’s Short-Run Supply Decision

For the interior case of ys* > 0, the second-order maximum profit condition is

That is,

So at a profit maximum with ys* > 0, thefirm’s MC curve must be upward-sloping.

the firm s short run supply decision7
The Firm’s Short-Run Supply Decision

At y = ys*, p = MC and MCslopes upwards. y = ys* is profit-maximizing.

$/output unit

pe

MCs(y)

y’

ys*

y

At y = y’, p = MC and MC slopes downwards.y = y’ is profit-minimizing.

the firm s short run supply decision8
The Firm’s Short-Run Supply Decision

At y = ys*, p = MC and MCslopes upwards. y = ys* is profit-maximizing. So a profit-max. supply level can lie only on

the upwards sloping part of the firm’s MC curve.

$/output unit

pe

MCs(y)

y’

ys*

y

the firm s short run supply decision9
The Firm’s Short-Run Supply Decision
  • But not every point on the upward-sloping part of the firm’s MC curve represents a profit-maximum.
the firm s short run supply decision10
The Firm’s Short-Run Supply Decision
  • But not every point on the upward-sloping part of the firm’s MC curve represents a profit-maximum.
  • The firm’s profit function is
  • If the firm chooses y = 0 then its profit is
the firm s short run supply decision11
The Firm’s Short-Run Supply Decision
  • So the firm will choose an output level y > 0 only if
the firm s short run supply decision12
The Firm’s Short-Run Supply Decision
  • So the firm will choose an output level y > 0 only if
  • I.e., only ifEquivalently, only if
the firm s short run supply decision13
The Firm’s Short-Run Supply Decision

$/output unit

MCs(y)

ACs(y)

AVCs(y)

y

the firm s short run supply decision14
The Firm’s Short-Run Supply Decision

$/output unit

MCs(y)

ACs(y)

AVCs(y)

y

the firm s short run supply decision15
The Firm’s Short-Run Supply Decision

p > AVCs(y)

$/output unit

MCs(y)

ACs(y)

AVCs(y)

y

the firm s short run supply decision16
The Firm’s Short-Run Supply Decision

p > AVCs(y) ys* > 0.

$/output unit

MCs(y)

ACs(y)

AVCs(y)

y

the firm s short run supply decision17
The Firm’s Short-Run Supply Decision

p > AVCs(y) ys* > 0.

$/output unit

MCs(y)

ACs(y)

AVCs(y)

y

p < AVCs(y) ys* = 0.

the firm s short run supply decision18
The Firm’s Short-Run Supply Decision

p > AVCs(y) ys* > 0.

$/output unit

MCs(y)

ACs(y)

AVCs(y)

The firm’s short-runsupply curve

y

p < AVCs(y) ys* = 0.

the firm s short run supply decision19
The Firm’s Short-Run Supply Decision

$/output unit

Shutdown point

MCs(y)

ACs(y)

AVCs(y)

The firm’s short-runsupply curve

y

the firm s short run supply decision20
The Firm’s Short-Run Supply Decision
  • Shut-down is not the same as exit.
  • Shutting-down means producing no output (but the firm is still in the industry and suffers its fixed cost).
  • Exiting means leaving the industry, which the firm can do only in the long-run.
in class
In Class
  • Producer’s Surplus Revisited
  • The Firm’s Long-Run Supply Decision
ad