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Macroeconomics of Agriculture AGEC 430 Spring 2010 Slide Show #13.

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Presentation on theme: "Macroeconomics of Agriculture AGEC 430 Spring 2010 Slide Show #13."— Presentation transcript:

1 Macroeconomics of Agriculture AGEC 430 Spring 2010 Slide Show #13

2 Macro to Market

3 Price Quantity D S pEpE qEqE General equilibrium in the money and product market General equilibrium in the money and product market

4 Price Quantity D S pEpE qEqE General equilibrium in the money and product market General equilibrium in the money and product market Equilibrium in the aggregate product market Equilibrium in the aggregate product market

5 Price Quantity D S pEpE qEqE General equilibrium in the money and product market General equilibrium in the money and product market Equilibrium in the aggregate product market Equilibrium in the aggregate product market Equilibrium in a single market

6 Price Quantity D S pEpE qEqE Demand for the product in this market would shift to the right as income increased. Supply should shift as interest rates fell, offset in part by higher input prices

7 Price Quantity D S pEpE qEqE Demand for the product in this market would shift to the left as income decreased. Supply should shift as interest rates rose, offset in part by lower input prices

8 Market to Micro Perfect Competition Case

9 Firm is a “Price Taker” Under Perfect Competition Price Quantity D S pEpE qEqE Price O MAX AVCMC The Market The Firm

10 If Demand Increases…… Price Quantity D S pEpE qEqE Price AVCMC The Market The Firm 10 11 D1D1

11 If Demand Decreases…… Price Quantity D S pEpE qEqE Price AVC MC The Market The Firm 9 10 D2D2

12 Firm is a “Price Taker” in the Input Market Price Quantity D S wr E LELE Price L MAX MVP MIC Labor Market The Firm

13 A decrease in the supply of labor will…. Price Quantity D S wr E LELE Price L MAX MVP MIC The Firm Labor Market

14 Market to Micro Imperfect Competition Case

15 Total revenue is equal to the area 0P E CQ E, which forms the blue box to the left… Notice the monopoly, like the previous forms of imperfect competition, produces where MC=MR (point A), but then reads up to the demand curve (point C) when setting price P E. Total revenue is equal to the area 0P E CQ E, which forms the blue box to the left… Notice the monopoly, like the previous forms of imperfect competition, produces where MC=MR (point A), but then reads up to the demand curve (point C) when setting price P E. The Monopoly Market Supply The Market and Micro are the same

16 Total variable costs for the monopolist is equal to area 0NAQ E, or the yellow box to the left. Total variable costs for the monopolist is equal to area 0NAQ E, or the yellow box to the left. The Monopoly Market Supply The Market and Micro are the same

17 Total fixed costs for the monopolist is equal to area NMBA, or the green box to the left… Total fixed costs for the monopolist is equal to area NMBA, or the green box to the left… The Monopoly Market Supply The Market and Micro are the same

18 Total cost is therefore equal to area 0MBQ E, or the green box plus the yellow box to the left Total cost is therefore equal to area 0MBQ E, or the green box plus the yellow box to the left The Monopoly Market Supply The Market and Micro are the same

19 Finally, the economic profit earned by the monopolist is equal to area MP E CB, or total revenue (blue box) minus total costs (green box plus yellow box). Finally, the economic profit earned by the monopolist is equal to area MP E CB, or total revenue (blue box) minus total costs (green box plus yellow box). The Monopoly Market Supply The Market and Micro are the same


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