1. Lectures in Microeconomics-Charles W. Upton The Basics of Competition MC = P

2. The Basics of Competition The Competitive Market The competitive firm is a price-taker.

3. The Basics of Competition The Competitive Market The competitive firm is a price-taker. It –Can sell all it produces at the going market price –Has no control over the market price

4. The Basics of Competition The Graphics of Price Taking P Q $10 10 $100 $8 B 13

5. The Basics of Competition The Graphics of Price Taking P Q $10 10 $100 $8 B 13 D

6. The Basics of Competition The Graphics of Price Taking P Q $10 10 $100 $8 B 13 D

7. The Basics of Competition The Mathematics

8. The Basics of Competition The Mathematics

9. The Basics of Competition The Mathematics

10. The Basics of Competition A Graphical Interpretation P* Q* Q P = P*, firm producing Q

11. The Basics of Competition A Graphical Interpretation P* Q* Expand output to Q* Q

12. The Basics of Competition A Graphical Interpretation P* Q* Q 

13. The Basics of Competition A Graphical Interpretation P* Q* Q  PfPf

14. The Basics of Competition A Graphical Interpretation P* Q* Q  PfPf

15. The Basics of Competition A Graphical Interpretation P* Q* Output depends on price. If price drops from P* to P**, output will go from Q* to Q**. P** Q**

16. The Basics of Competition A Tabular Interpretation

17. The Basics of Competition A Tabular Interpretation MC first falls and then rises.

18. The Basics of Competition A Tabular Interpretation MC first falls and then rises. Production depends on price.

19. The Basics of Competition A Tabular Interpretation

20. The Basics of Competition A Mathematical Interpretation C = 4 + 5q +q 2

21. The Basics of Competition A Mathematical Interpretation C = 4 + 5q +q 2 MC = 5 + 2q

22. The Basics of Competition A Mathematical Interpretation C = 4 + 5q +q 2 MC = 5 + 2q MC = P

23. The Basics of Competition A Mathematical Interpretation C = 4 + 5q +q 2 MC = 5 + 2q MC = P 5+2Q = P

24. The Basics of Competition A Mathematical Interpretation C = 4 + 5q +q 2 MC = 5 + 2q MC = p 5+2Q = p 2Q = P-5

25. The Basics of Competition A Mathematical Interpretation C = 4 + 5q +q 2 MC = 5 + 2q MC = p 5+2Q = P 2Q = P-5 Q = (½)P –2.5

26. The Basics of Competition Some key propositions No matter how we look at it, the rule is Set output so that MC = price

27. The Basics of Competition Some key propositions No matter how we look at it, the rule is Set output so that MC = price It is NOT Set price = MC

28. The Basics of Competition Some key propositions No matter how we look at it, the rule is Set output so that MC = price It is NOT Set price = MC

29. The Basics of Competition End ©2003 Charles W. Upton