PowerPoint PresentationSlide 2Slide 3Slide 4Slide 5Slide 6Slide 7Slide 8Slide 9Slide 10Slide 11Slide 12Slide 13Slide 14Slide 15Slide 16Slide 17Slide 18Slide 19Slide 20Slide 21Slide 22Slide 23Slide 24Slide 25Slide 26Slide 27Slide 28Slide 29Slide 30Slide 31Slide 32Slide 33Slide 34Slide 35Slide 36Slide 37Slide 38Slide 39Slide 40Slide 41Slide 42Slide 43Slide 44Slide 45Slide 46Slide 47Slide 48Slide 49Slide 50Slide 51Slide 52Slide 53Slide 54Slide 55Slide 56Slide 57Slide 58Slide 59Slide 60Slide 61Slide 62Slide 63Slide 64Slide 65Slide 66Slide 67Slide 68Slide 69Slide 70Slide 71Slide 72Slide 73Slide 74Slide 75Slide 76Slide 77Slide 78Slide 79Slide 80Slide 81Slide 82Slide 83Slide 84Slide 85Slide 86Slide 87Slide 88Slide 89Slide 90Slide 91Perfect CompetitionLong RunOverheadsReview of short run equilibriumThe number of firms is fixedThe firm is operating on a short-run cost curveSome inputs are fixedQS ΣLi 1yi(p, w1,w2, , z)The market or industry supply curve, QS, is the horizontal summation of the individual firm supply curvesyi yi(p, w1, w2, , wn, z)Industry Supply-Demand Equilibrium$OutputS(p)p0Q0D(p)Demand for Individual Firm$Outputp0D(p)AVCMCATCP = 1200501001502002503000 2 4 6 8 10 12 14 16 18Output$Short run equilibriumCompetitive markets in the long runThe number of firms in the industry can varyThe firm is operating on its long run cost curveConditions for a long run equilibrium1. No individual firm wishes to change the amount of the good it is supplying to the market2. No individual consumer wishes to change the amount ofthe good he or she is demanding3. No individual firm in the market has an incentive to changethe amount of any of the inputs it is usingor to exit from the market4. No firm outside the market has any incentive to enter it5. The aggregate supply in the market equals theaggregate demand in the marketPlant size adjustment by the firmwith no change in the market priceP = Price = $292Short run average and marginal costs as in the tableAssumptions for example problemThe firm is operating a plant with a capacity rating of 55SRAC SRMC SRAC SRMC SRAC SRMC SRAC SRMC y Price 5 5 9 9 15 15 18 180.00 2921.00 292 851.00 103.00 2291.00 6251.00 9041.002.00 292 479.00 112.00 1079.00 2879.00 4184.004.00 292 303.50 148.00 483.50 1203.50 1766.005.00 292 275.00 175.00 371.00 875.00 1289.006.00 292 261.00 208.00 301.00 661.00 976.00 7.00 292 256.14 247.00 256.14 7.00 513.29 757.57 8.00 292 257.75 292.00 227.75 52.00 407.75 599.00 9.00 292 264.33 343.00 211.00 103.00 331.00 481.0010.00 292 275.00 400.00 203.00 160.00 275.00 392.0011.00 292 289.18 463.00 201.91 223.00 234.64 324.6412.00 292 306.50 532.00 206.50 292.00 206.50 274.0013.00 292 326.69 607.00 215.92 367.00 188.23 7.00 236.69 14.00 292 349.57 688.00 229.57 448.00 178.14 88.00 210.2915.00 292 375.00 775.00 247.00 535.00 175.00 175.00 193.00 16.00 292 402.88 868.00 267.88 628.00 177.88 268.00 183.50 88.0017.00 292 433.12 967.00 291.94 727.00 186.06 367.00 180.76 187.0018.00 292 465.67 1072.00 319.00 832.00 199.00 472.00 184.00 292.0019.00 292 500.47 1183.00 348.89 943.00 216.26 583.00 192.58 403.0020.00 292 537.50 1300.00 381.50 1060.00 237.50 700.00 206.00 520.0022.00 292 618.09 1552.00 454.45 1312.00 290.82 952.00 245.82 772.0023.00 292 661.61 1687.00 494.65 1447.00 322.48 1087.00 271.61 907.00Conditions for short run equilibriumPrice = MCPrice AVCSRAC SRMC SRAC SRMC SRAC SRMC SRAC SRMC y Price 5 5 9 9 15 15 18 180.00 2921.00 292 851.00 103.00 2291.00 6251.00 9041.002.00 292 479.00 112.00 1079.00 2879.00 4184.004.00 292 303.50 148.00 483.50 1203.50 1766.005.00 292 275.00 175.00 371.00 875.00 1289.006.00 292 261.00 208.00 301.00 661.00 976.00 7.00 292 256.14 247.00 256.14 7.00 513.29 757.57 8.00 292 257.75 292.00 227.75 52.00 407.75 599.00 9.00 292 264.33 343.00 211.00 103.00 331.00 481.0010.00 292 275.00 400.00 203.00 160.00 275.00 392.0011.00 292 289.18 463.00 201.91 223.00 234.64 324.6412.00 292 306.50 532.00 206.50 292.00 206.50 274.0013.00 292 326.69 607.00 215.92 367.00 188.23 7.00 236.69 14.00 292 349.57 688.00 229.57 448.00 178.14 88.00 210.2915.00 292 375.00 775.00 247.00 535.00 175.00 175.00 193.00 16.00 292 402.88 868.00 267.88 628.00 177.88 268.00 183.50 88.0017.00 292 433.12 967.00 291.94 727.00 186.06 367.00 180.76 187.0018.00 292 465.67 1072.00 319.00 832.00 199.00 472.00 184.00 292.0019.00 292 500.47 1183.00 348.89 943.00 216.26 583.00 192.58 403.0020.00 292 537.50 1300.00 381.50 1060.00 237.50 700.00 206.00 520.0022.00 292 618.09 1552.00 454.45 1312.00 290.82 952.00 245.82 772.0023.00 292 661.61 1687.00 494.65 1447.00 322.48 1087.00 271.61 907.00SRAC SRMC SRAC SRMC y Price 5 5 9 96.00 292 261.00 208.00 301.00 7.00 292 256.14 247.00 256.14 7.008.00 292 257.75 292.00 227.75 52.00 9.00 292 264.33 343.00 211.00 103.0010.00 292 275.00 400.00 203.00 160.0011.00 292 289.18 463.00 201.91 223.0012.00 292 306.50 532.00 206.50 292.00P = 292SRMC 5 SRAC 5MC = $292 y* = 8Short Run Equilibrium 1 0501001502002503003504004505000 5 10 15 20 25 30 35Profit 274.00SRAC SRMC SRAC SRMC SRAC SRMC SRAC SRMC y Price 5 5 9 9 15 15 18 180.00 2921.00 292 851.00 103.00 2291.00 6251.00 9041.002.00 292 479.00 112.00 1079.00 2879.00 4184.004.00 292 303.50 148.00 483.50 1203.50 1766.005.00 292 275.00 175.00 371.00 875.00 1289.006.00 292 261.00 208.00 301.00 661.00 976.00 7.00 292 256.14 247.00 256.14 7.00 513.29 757.57 8.00 292 257.75 292.00 227.75 52.00 407.75 599.00 9.00 292 264.33 343.00 211.00 103.00 331.00 481.0010.00 292 275.00 400.00 203.00 160.00 275.00 392.0011.00 292 289.18 463.00 201.91 223.00 234.64 324.6412.00 292 306.50 532.00 206.50 292.00 206.50 274.0013.00 292 326.69 607.00 215.92 367.00 188.23 7.00 236.69 14.00 292 349.57 688.00 229.57 448.00 178.14 88.00 210.2915.00 292 375.00 775.00 247.00 535.00 175.00 175.00 193.00 16.00 292 402.88 868.00 267.88 628.00 177.88 268.00 183.50 88.0017.00 292 433.12 967.00 291.94 727.00 186.06 367.00 180.76 187.0018.00 292 465.67 1072.00 319.00 832.00 199.00 472.00 184.00
View Full Document
Unlocking...