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Pure Competition Chapter 10. Chapter 23 Table 23.1 Four types of Market Organization.

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Presentation on theme: "Pure Competition Chapter 10. Chapter 23 Table 23.1 Four types of Market Organization."— Presentation transcript:

1 Pure Competition Chapter 10

2 Chapter 23 Table 23.1 Four types of Market Organization

3 P = MR for a Perfectly Competitive Firm

4 Chapter 23 Table 23.2

5 In a Perfectly Competitive Market, the firm is a Price Taker

6 Chapter 23 Figure 23.1

7 Chapter 23 Table 23.3

8 Chapter 23 Figure 23.2

9 Maximizing Profit in Pure Competition Profit maximum occurs When total revenue exceeds total costs by the greatest amount This occurs where the slopes of total cost and total revenue are equal

10 Chapter 23 Table 23.4

11 Profit Maximum in Perfect Competition Equivalent to finding equal slopes for TR & TC MR = MC For a firm in a perfectly competitive market MR = P therefore MR = P = MC

12 Chapter 23 Figure 23.3

13 Short-run v. Long-run Economic Profit Firms maximize short-run economic profit In the long run, existence of short-run profits attract new market entrants, i.e., more competitors driving down prices ensuring zero long-run economic profit

14 Chapter 23 Table 23.5 Loss-minimizing Output

15 Chapter 23 Figure 23.4 Loss-minimizing Output

16 Chapter 23 Figure 23.5 Shutdown Condition

17

18 Chapter 23 Table 23.6

19 Chapter 23 Figure 23.6 Marginal Cost and Firm Supply

20 Chapter 23 Table 23.7 Market Equilibrium

21 Chapter 23 Figure 23.7(a) Short-run Competitive Equilibrium for the Firm

22 Chapter 23 Figure 23.7(b) Short-run Competitive Equilibrium for the Industry and the Market

23 Chapter 23 Table 23.8 The Perfectly Competitive Firm’s Output Decision

24 Chapter 23 Figure 23.8(a) Temporary Profits Attract New Firms

25 Chapter 23 Figure 23.8(b) Resulting in Lower Prices

26 Chapter 23 Figure 23.9(a) Short-run Losses Drive Firms Out

27 Chapter 23 Figure 23.9(b) Driving Prices Back Up

28 Chapter 23 Figure 23.10 Long-run Supply is Perfectly Elastic for a Constant-cost Industry

29 Chapter 23 Figure 23.11 Long-run Supply for an Increasing-cost Industry

30 Chapter 23 Figure 23.12 Long-run Equilibrium for a Perfectly Competitive Firm

31 Efficiency and Pure Competition Productive Efficiency P = Min ATC Allocative Efficiency P = MC Underallocation implied by P > MC Overallocation implied by P < MC

32 Consumer Surplus Perfect Competition Divides Surplus Value (Subjective) more or less equally between Consumers and Producers Provides Maximum Consumer Surplus consistent with keeping the good in production


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