1 CHAPTER 8 PERFECT COMPETITION E CONOMICS S ECOND E DITION R OBERT E. H ALL S TANFORD U NIVERSITY M ARC L IEBERMAN N EW Y ORK U NIVERSITY.

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1 CHAPTER 8 PERFECT COMPETITION E CONOMICS S ECOND E DITION R OBERT E. H ALL S TANFORD U NIVERSITY M ARC L IEBERMAN N EW Y ORK U NIVERSITY

ECONOMICS 2e / HALL & LIEBERMAN CHAPTER 8 / PERFECT COMPETITION © 2001 South-Western 2 Figure 1The Competitive Industry and Firm Ounces of Gold per Day Price per Ounce D $400 S (a) Market Price per Ounce Ounces of Gold per Day Demand Curve Facing the Firm $400 (b) Firm

ECONOMICS 2e / HALL & LIEBERMAN CHAPTER 8 / PERFECT COMPETITION © 2001 South-Western 3 Table 1Cost and Revenue Data for Small Time Gold Mines

ECONOMICS 2e / HALL & LIEBERMAN CHAPTER 8 / PERFECT COMPETITION © 2001 South-Western 4 Figure 2 Profit Maximization in Perfect Competition

ECONOMICS 2e / HALL & LIEBERMAN CHAPTER 8 / PERFECT COMPETITION © 2001 South-Western 5 Figure 3Measuring Profit or Loss Ounces of Gold per Day Dollars $ Profit per Ounce $100 d = MR MC ATC (a) Economic Profit Ounces of Gold per Day Dollars MC ATC d = MR $ Loss per Ounce $100 (b) Economic Loss

ECONOMICS 2e / HALL & LIEBERMAN CHAPTER 8 / PERFECT COMPETITION © 2001 South-Western 6 Figure 4Short-Run Supply Under Perfect Competition

ECONOMICS 2e / HALL & LIEBERMAN CHAPTER 8 / PERFECT COMPETITION © 2001 South-Western 7 Figure 5Deriving the Market Supply Curve

ECONOMICS 2e / HALL & LIEBERMAN CHAPTER 8 / PERFECT COMPETITION © 2001 South-Western 8 Figure 6 Perfect Competition

ECONOMICS 2e / HALL & LIEBERMAN CHAPTER 8 / PERFECT COMPETITION © 2001 South-Western 9 Figure 7Short-Run Equilibrium in Perfect Competition Bushels per Year Price per Bushel $3.50 S D 1 (a) Market MC d 1 Profit per Bushel at p = $3.50 ATC 7,000Bushels per Year Dollars $3.50 (b) Firm 700,000 d 2 Loss per Bushel at p = $ ,000 D ,000

ECONOMICS 2e / HALL & LIEBERMAN CHAPTER 8 / PERFECT COMPETITION © 2001 South-Western 10 FIGURE 8aFrom Short-Run Profit to Long-Run Equilibrium Bushels per Year Price per Bushel S 1 D A 900,000 $4.50 With initial supply curve, market price is $ S 1

ECONOMICS 2e / HALL & LIEBERMAN CHAPTER 8 / PERFECT COMPETITION © 2001 South-Western 11 FIGURE 8bFrom Short-Run Profit to Long-Run Equilibrium A d 1 Bushels per Year Dollars 9,000 $4.50 ATC MC 5, so each firm earns an economic profit

ECONOMICS 2e / HALL & LIEBERMAN CHAPTER 8 / PERFECT COMPETITION © 2001 South-Western 12 FIGURE 8cFrom Short-Run Profit to Long-Run Equilibrium

ECONOMICS 2e / HALL & LIEBERMAN CHAPTER 8 / PERFECT COMPETITION © 2001 South-Western 13 FIGURE 8dFrom Short-Run Profit to Long-Run Equilibrium A d 1 d 2 Bushels per Year 5,0009, $4.50 ATC MC... until market price falls to $2.50 and each firm earns zero economic profit

ECONOMICS 2e / HALL & LIEBERMAN CHAPTER 8 / PERFECT COMPETITION © 2001 South-Western 14 Figure 9Perfect Competition and Plant Size Output per Period Dollars P 1 (a) q1q1 d 1 = MR 1 LRATC MC 1 ATC 1 Dollars (b) E Output per Period d 2 = MR 2 LRATC MC 2 ATC 2 P*P* q*q*

ECONOMICS 2e / HALL & LIEBERMAN CHAPTER 8 / PERFECT COMPETITION © 2001 South-Western 15 Figure 10An Increasing-Cost Industry Output per Period Price per Unit D1D1 S1S1 S LR A P1P1 Q1Q1 Market Dollars Firm Output per Period P1P1 q1q1 MC A Q SR D2D2 B P SR q SR P SR B d SR = MR SR ATC 1 d 1 = MR 1 2 ATC P2P2 d 2 = MR 2 q2q2 C Q2Q2 S2S2 C P2P2

ECONOMICS 2e / HALL & LIEBERMAN CHAPTER 8 / PERFECT COMPETITION © 2001 South-Western 16 Figure 11Technological Change in Perfect Competition Bushels per Day Price per Bushel $3 Q1Q1 S1S1 A D (a) Market 1000 ATC 1 d 1 = MR 1 Bushels per Day Dollars per Bushel $3 (b) Firm ATC 2 d 2 = MR 2 2 S2S2 Q2Q2 B 2

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