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Warm-Up

Warm-Up. Tickets to states cost $10 and the line is out the door. What does this say about the market? What are possible solutions to the problem? What do you think would happen to revenues? Why?. Introduction to Perfect Competition.

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Warm-Up

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  1. Warm-Up • Tickets to states cost $10 and the line is out the door. What does this say about the market? • What are possible solutions to the problem? • What do you think would happen to revenues? Why?

  2. Introduction to Perfect Competition Chapter 13: Perfect Competition and the Supply Curve (pages 330-334; 336-340)

  3. Market Structures • Depend on two major factors: • # of firms (1, few or many) • Nature of product (identical or different) • Answers determine type of market

  4. Identical or Differentiated? Identical

  5. Identical or Differentiated? Differentiated

  6. Identical or Differentiated? Identical

  7. Identical or Differentiated? Identical

  8. Identical or Differentiated? Differentiated

  9. Market Structures

  10. Perfect Competition • Assume the following: • Many firms are in the market • Firms sell identical products • No barriers to entry

  11. `

  12. Optimum Output Rule… MR = MC We also know… P = MR

  13. But is it profitable? • Accounting vs. Economic Profit? • Assume costs include implicit cost

  14. But is it profitable? • If TR > TC  Firm is profitable • If TR < TC  Firm has a loss • If TR = TC  Firm “breaks even” But that’s not all…

  15. What about profit per unit? • Substitute and we get … p/Q = P – ATC

  16. We find then that … • If P > ATC  Firm is profitable • If P < ATC  Firm has a loss • If P = ATC  Firm has normal profit

  17. Daphne’s Apparel Shop • Use the optimal output rule to find the level of output that maximizes profit if the market price is $9 each. • Calculate her economic profit or loss. • Repeat assuming that the market price is $6 each.

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