1. Economics 111.3 Winter 14 March 24 th, 2014 Lecture 26 Ch. 12: Perfect competition

2. FINAL EXAM is based on chapters 3, 4, 5 (up to p. 116), 6 (up to p. 138), 8, 9, 10 (up to p. 230, 11, 12, 13, and 14 Its format: 100 Multiple-Choice Questions When and Where: April 21, from 7:00 p.m. to 10:00 p.m; STM 140 Extra Office Hours: April 19, from 1:00 p.m. to 3:00 p.m. Final Exam:

6. © 2010 Pearson Education Canada In part (c) price is less than average total cost and the firm incurs an economic loss—economic profit is negative. Output, Price, and Profit in the Short Run

7. P = 131

8. Loss-Minimizing Case Suppose price falls from $131 to $81…

9. QTFCTVCTC 0$100$ 0$ 100 110090190 2100170270 3100240340 4100300400 5100370470 6100450550 7100540640 8100650750 9100780880 101009301030 MCMR $ 90$81 8081 7081 6081 8081 9081 11081 13081 15081 ] ] ] ] ] ] ] ] ]

10. 550/6

15. Shutdown Condition MR =MC = min AVC A competitive firm will maximize profit or minimize losses in the short-run by producing that output at which MR=P=MC, provided that market price (P) exceeds minimum AVC

18. Short-run supply curve Short-run supply curve is the portion of the firm’s marginal cost curve lying above its average variable cost curve

19. © 2010 Pearson Education Canada Short-run supply curve is the portion of the firm’s marginal cost curve lying above its average variable cost curve

21. Short-Run Supply Curve

22. Q QPP TotalIndustryDemand Industry Firm (price taker) Firm & Industry D

23. 8000 D Industry Firm (price taker) $111MC Q QPP S=  MCs

24. MC AVC 8000 D Industry Firm (price taker) The firm “takes” the industry price The firm “takes” the industry price $111 Q QPP

25. MC AVC 8 D 8000 D $111 $111 1000 firms Industry Firm (price taker) Q QPP S=  MCs

26. Q QPP MC AVC ATC 8 D 8000 D $111 $111 Industry Firm (price taker) EconomicProfitEconomicProfit S=  MCs

27. Profit Maximization in the Long Run Assumptions: –entry and exit only –identical costs –constant-cost industry

28. © 2010 Pearson Education Canada

30. Long-run Equilibrium if price > min ATC –profits attract new firms –as S increases, price drops to min ATC if price < min ATC –losses cause firms to exit –as S decreases, price rises to min ATC so, in the long run, p=min ATC

32. Long-Run Equilibrium