Presentation is loading. Please wait.

Presentation is loading. Please wait.

Unit 3: Costs of Production and Perfect Competition

Published bySugiarto Darmali Modified over 5 years ago

Similar presentations

Presentation on theme: "Unit 3: Costs of Production and Perfect Competition"— Presentation transcript:

1 Unit 3: Costs of Production and Perfect Competition
Copyright ACDC Leadership 2015

2 Law of Demin. Marginal Returns Fixed Cost Low Barriers Price Taker
NAME THAT CONCEPT Law of Demin. Marginal Returns Fixed Cost Low Barriers Price Taker MR = MC Copyright ACDC Leadership 2015

3 Variable Costs Shut Down Rule MR=D=AR=P (Mr. Darp) Normal Profit
NAME THAT CONCEPT Variable Costs Shut Down Rule MR=D=AR=P (Mr. Darp) Normal Profit Economies of Scale Copyright ACDC Leadership 2015

4 Review Draw and label a perfectly competitive firm making a profit
Draw and label a perfectly competitive firm making a loss Why is that firm considered a “price taker”? How do firms determine what output to produce? On your graph, identify the shut down point On your graph, identify the firms supply curve What happens in the industry if there is a profit? What happens in the industry if there is a loss? List 10 rides at Disneyland

5 Four Market Structures
Perfect Competition Monopolistic Competition Monopoly Oligopoly Imperfect Competition Characteristics of Perfect Competition: Examples: Corn, Strawberries, Milk, etc. Many small firms Identical products (perfect substitutes) Low Barriers- Easy for firms to enter and exit the industry Seller has no need to advertise Firms are “Price Takers” The seller has NO control over price. Copyright ACDC Leadership 2015

6 Shifting Cost Curves A change in fixed costs change ATC and AFC (but not MC) A change in variable costs change ATC, AVC, and MC Copyright ACDC Leadership 2015

7 Changes in fixed costs don’t change output

8 Changes in variable costs change output
50. D Changes in variable costs change output Copyright ACDC Leadership 2015

9 Efficiency Copyright ACDC Leadership 2015

10 1. Productive Efficiency 2. Allocative Efficiency
In general, efficiency is the optimal use of societies scarce resources Perfect Competition forces producers to use limited resources to their fullest. Inefficient firms have higher costs and are the first to leave the industry. Perfectly competitive industries are extremely efficient There are two kinds of efficiency: 1. Productive Efficiency 2. Allocative Efficiency 10 Copyright ACDC Leadership 2015

11 Graphically it is where price equals the minimum ATC
Productive Efficiency- Producing at the lowest possible cost (minimum amount of resources are being used) Graphically it is where price equals the minimum ATC Allocative Efficiency- Producing at the amount most desired by society (allocating resources towards the products society wants) Graphically it is where price equals marginal cost 11 Copyright ACDC Leadership 2015

12 Short-Run Profit Not Productively Efficient
MC MR=D=AR=P $10 ATC Notice that Q1 is NOT being made at the lowest possible cost (ATC not at lowest point). Q Q1 12 Copyright ACDC Leadership 2015

13 Short-Run Loss Not Productively Efficient
MC ATC MR=D=AR=P $5 Notice that Q2 is NOT being made at the lowest possible cost (ATC not at lowest point). Q2 Q 13 Copyright ACDC Leadership 2015

14 Long-Run Equilibrium Productively Efficient in the Long-Run
MC ATC $8 MR=D=AR=P In the long-run, Q2 IS being made at the lowest possible cost (ATC at lowest point) Q3 Q 14 Copyright ACDC Leadership 2015

15 Allocatively Efficient
Short-Run Profit Allocatively Efficient P MC MR=D=AR=P $10 ATC Notice that the price people are willing to pay equals the additional cost to produce Q1 (Price = MC) Q Q1 15 Copyright ACDC Leadership 2015

16 NOT Allocatively Efficient
Short-Run Profit NOT Allocatively Efficient P MC MR=D=AR=P $10 $5 ATC At Q2, the price is greater than the MC so society wants more output produced Q Q2 16 Copyright ACDC Leadership 2015

17 competitive profit maximizing firm is always allocatively efficient
Long-Run Equilibrium P MC ATC $8 MR=D=AR=P A perfectly competitive profit maximizing firm is always allocatively efficient Q3 Q 17 Copyright ACDC Leadership 2015

18 Summary Perfectly competitive firms are allocatively and productively efficient in the long-run In the short-run, they are always allocatively efficient, but they are not productively efficient. 18 Copyright ACDC Leadership 2015

Download ppt "Unit 3: Costs of Production and Perfect Competition"

Similar presentations

Perfect Competition.

Perfect Competition.
4 Market Structures Candy Markets Simulation.

4 Market Structures Candy Markets Simulation.
And Unit 3 – Theory of the FirmPart 2. 1. Many buyers and sellers 2. All the products are homogeneous. 3. All buyers & sellers are price takers. 4. There.

And Unit 3 – Theory of the FirmPart Many buyers and sellers 2. All the products are homogeneous. 3. All buyers & sellers are price takers. 4. There.
Pure Competition 6 LECTURE Market Structure Continuum FOUR MARKET MODELS Pure Competition.

Pure Competition 6 LECTURE Market Structure Continuum FOUR MARKET MODELS Pure Competition.
Pure Competition P = MC CHAPTER TWENTY-THREE Copyright McGraw-Hill, Inc. 1999.

Pure Competition P = MC CHAPTER TWENTY-THREE Copyright McGraw-Hill, Inc
Unit 3: The Costs of Production and Perfect Competition REVIEW ACTIVITY 1.

Unit 3: The Costs of Production and Perfect Competition REVIEW ACTIVITY 1.
Perfect Competition 1. Market Structure Continuum Pure Competition Pure Monopoly Monopolistic Competition Oligopoly FOUR MARKET MODELS Characteristics.

Perfect Competition 1. Market Structure Continuum Pure Competition Pure Monopoly Monopolistic Competition Oligopoly FOUR MARKET MODELS Characteristics.
Unit 3: Costs of Production and Perfect Competition

Unit 3: Costs of Production and Perfect Competition
Online Resources Monopoly Quiz (with answers) Practice FRQs Unit 3 and 4 Powerpoints 1.

Online Resources Monopoly Quiz (with answers) Practice FRQs Unit 3 and 4 Powerpoints 1.
Unit III: Costs of Production and Perfect Competition

Unit III: Costs of Production and Perfect Competition
Every product is sold in a market that can be considered one of the above market structures. For example: 1.Fast Food Market 2.The Market for Cars 3.Market.

Every product is sold in a market that can be considered one of the above market structures. For example: 1.Fast Food Market 2.The Market for Cars 3.Market.
10 - 1 Copyright McGraw-Hill/Irwin, 2002 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue.

Copyright McGraw-Hill/Irwin, 2002 Four Market Models Demand as seen by a Purely Competitive Seller Short-Run Profit Maximization Marginal Revenue.
Unit 4: Imperfect Competition 1 Copyright ACDC Leadership 2015.

Unit 4: Imperfect Competition 1 Copyright ACDC Leadership 2015.
Monopolistic Competition

Monopolistic Competition
Perfect Competition in the Long-Run 1 You are a wheat farmer. You learn that there is a more profit in making corn. What do you do in the long run? Copyright.

Perfect Competition in the Long-Run 1 You are a wheat farmer. You learn that there is a more profit in making corn. What do you do in the long run? Copyright.
Copyright 2008 The McGraw-Hill Companies 21-1 Four Market Models Pure Competition Profit Maximization in the Short-Run Marginal Cost and Short-Run Supply.

Copyright 2008 The McGraw-Hill Companies 21-1 Four Market Models Pure Competition Profit Maximization in the Short-Run Marginal Cost and Short-Run Supply.
Pure Competition in the Short Run 10 McGraw-Hill/IrwinCopyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.

Pure Competition in the Short Run 10 McGraw-Hill/IrwinCopyright © 2012 by The McGraw-Hill Companies, Inc. All rights reserved.
MOD 58-60: PERFECT COMPETITION MARKET STRUCTURES.

MOD 58-60: PERFECT COMPETITION MARKET STRUCTURES.
McGraw-Hill/Irwin Chapter 7: Pure Competition Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.

McGraw-Hill/Irwin Chapter 7: Pure Competition Copyright © 2010 by The McGraw-Hill Companies, Inc. All rights reserved.
8 Perfect Competition SLIDES CREATED BY ERIC CHIANG CHAPTER 8 SLIDE 1

8 Perfect Competition SLIDES CREATED BY ERIC CHIANG CHAPTER 8 SLIDE 1

Similar presentations

Ads by Google