1. Perfect Competition In Markets Ir. Muhril A, M.Sc., Ph.D.1 Perfect Competition In Markets http://mikroekonomi.wordpress.com/

2. Perfect Competition In Markets Ir. Muhril A, M.Sc., Ph.D.2 What Is Perfect Competition? Perfect competitive markets have four characteristics: 1. The industry is fragmented. It consists of many buyers and sellers. 2. Firms produce undifferentiated products. Products to be identical. 3. Consumers have perfect information about prices all sellers in the market charge. 4. The industry is characterized by equal access to resources.

3. Perfect Competition In Markets Ir. Muhril A, M.Sc., Ph.D.3 The Profit Maximizing Output Choice For A Price Taking Firm  = TR (Q) – TC (Q)  = economic profit. TR = total revenue. TC = total economic cost of producing the quantity Q. Q = quantity of outputs. TR = P. Q P = market price.

4. Perfect Competition In Markets Ir. Muhril A, M.Sc., Ph.D.4 Marginal Revenue Marginal Revenue (MR): the rate at which total revenue changes with respect to output. MR = (  TR) / (  Q) Note: for a price taking firm MR = P P = price.

5. Perfect Competition In Markets Ir. Muhril A, M.Sc., Ph.D.5 Profit Maximization By Price Taking Firm Figure 9.1. Page 305. Profit maximization conditions for a price- taking firm: 1. P = MC 2. MC must be increasing.

6. Perfect Competition In Markets Ir. Muhril A, M.Sc., Ph.D.6 Short Run Supply Curve For A Price Taking Firm Figure 9.2. Page 308.

7. Perfect Competition In Markets Ir. Muhril A, M.Sc., Ph.D.7 Firm’s Short Run Supply Curve: 1. Produces positive output, produces where P = SMC and SMC slopes upward. SMC = short run marginal cost. 2. Never produces where P < AVC

8. Perfect Competition In Markets Ir. Muhril A, M.Sc., Ph.D.8 Shut Down Price Shut down price: the price below which a firm supplies zero output in the short run.

9. Perfect Competition In Markets Ir. Muhril A, M.Sc., Ph.D.9 Case: Suppose STC = 100 + 20Q + Q 2 Total fixed cost is 100 TVC = ? SMC = ? AVC =? min AVC = ? Firm’s short run supply curve?

10. Perfect Competition In Markets Ir. Muhril A, M.Sc., Ph.D.10 Figure 9.3. Page 311.

11. Perfect Competition In Markets Ir. Muhril A, M.Sc., Ph.D.11 Comparative Statics Analysis Of The Short Run Equilibrium Figure 9.9. Page 319. An increase in the number of firm.

12. Perfect Competition In Markets Ir. Muhril A, M.Sc., Ph.D.12 The Firm’s Long Run Supply Curve Figure 9.16. Page 328

13. Perfect Competition In Markets Ir. Muhril A, M.Sc., Ph.D.13 Producer Surplus and Consumer Surplus Producer surplus: a measure of the monetary benefit that producers derive from producing derive from producing a good at particular price. Consumer surplus: a measure of the monetary benefit that consumers derive from consuming derive from consuming a good at particular price.