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

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

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

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

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

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

The Basics of Competition The Mathematics

The Basics of Competition The Mathematics

The Basics of Competition The Mathematics

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

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

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

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

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

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**

The Basics of Competition A Tabular Interpretation

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

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

The Basics of Competition A Tabular Interpretation

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

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

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

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

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

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

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

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

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

The Basics of Competition End ©2003 Charles W. Upton