Post on 14-Jun-2015
Microeconomics Lecture 14
!
Market Structures Perfect Competition
Key Termsaverage revenue marginal revenue sunk cost
Breakeven
Breakeven
Where total revenue equals total costs
Breakeven
BreakevenFC = 1000
BreakevenFC = 1000VC = 30Q
BreakevenFC = 1000VC = 30QTC = FC + VC
BreakevenFC = 1000VC = 30QTC = FC + VCTC = 1000 + 30Q
BreakevenFC = 1000VC = 30QTC = FC + VCTC = 1000 + 30Q P = 50
BreakevenFC = 1000VC = 30QTC = FC + VCTC = 1000 + 30Q P = 50TR = P x Q
BreakevenFC = 1000VC = 30QTC = FC + VCTC = 1000 + 30Q P = 50TR = P x QTR = 50Q
BreakevenFC = 1000VC = 30QTC = FC + VCTC = 1000 + 30Q P = 50TR = P x QTR = 50QTR = TC
BreakevenFC = 1000VC = 30QTC = FC + VCTC = 1000 + 30Q P = 50TR = P x QTR = 50QTR = TC50Q = 1000 + 30Q
BreakevenFC = 1000VC = 30QTC = FC + VCTC = 1000 + 30Q P = 50TR = P x QTR = 50QTR = TC50Q = 1000 + 30Q20Q = 1000
BreakevenFC = 1000VC = 30QTC = FC + VCTC = 1000 + 30Q P = 50TR = P x QTR = 50QTR = TC50Q = 1000 + 30Q20Q = 1000Q = 50
BreakevenFC = 1000VC = 30QTC = FC + VCTC = 1000 + 30Q P = 50TR = P x QTR = 50QTR = TC50Q = 1000 + 30Q20Q = 1000Q = 50
0
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1000
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0 10 20 30 40 50 60 70 80 90 100
BreakevenFC = 1000VC = 30QTC = FC + VCTC = 1000 + 30Q P = 50TR = P x QTR = 50QTR = TC50Q = 1000 + 30Q20Q = 1000Q = 50
0
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1000
1500
2000
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0 10 20 30 40 50 60 70 80 90 100
BreakevenFC = 1000VC = 30QTC = FC + VCTC = 1000 + 30Q P = 50TR = P x QTR = 50QTR = TC50Q = 1000 + 30Q20Q = 1000Q = 50
0
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1000
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Breakeven
Breakeven
0
500
1000
1500
2000
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3500
4000
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Breakeven
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500
1000
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0 10 20 30 40 50 60 70 80 90 100
Breakeven
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1000
1500
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0 10 20 30 40 50 60 70 80 90 100
Total Cost
Breakeven
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
0 10 20 30 40 50 60 70 80 90 100
Total Revenue
Total Cost
Breakeven
0
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1000
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2000
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3000
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4000
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0 10 20 30 40 50 60 70 80 90 100
Total Revenue
Total Cost
Breakeven
0
500
1000
1500
2000
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3000
3500
4000
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0 10 20 30 40 50 60 70 80 90 100
Total Revenue
Total Cost
Breakeven
0
500
1000
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2000
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3000
3500
4000
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0 10 20 30 40 50 60 70 80 90 100
Total Revenue
Total Cost
Breakeven
0
500
1000
1500
2000
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3000
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4000
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0 10 20 30 40 50 60 70 80 90 100
Total Revenue
Total Cost
Breakeven
0
500
1000
1500
2000
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3000
3500
4000
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0 10 20 30 40 50 60 70 80 90 100
Total Revenue
Total Cost
Profit
Breakeven
0
500
1000
1500
2000
2500
3000
3500
4000
4500
5000
0 10 20 30 40 50 60 70 80 90 100
Total Revenue
Total Cost
Loss
Profit
The Four Market Structures
The Four Market Structures
The Four Market Structures
Perfect Competition
The Four Market Structures
Perfect Competition
Monopoly
The Four Market Structures
Perfect Competition
MonopolyMonopolistic Competition
Brand
The Four Market Structures
Perfect Competition
MonopolyMonopolistic Competition
BrandOligopoly
The Four Market Structures
Perfect Competition
MonopolyMonopolistic Competition
BrandOligopoly
Number of Firms
The Four Market Structures
Perfect Competition
MonopolyMonopolistic Competition
BrandOligopoly
Number of Firms
Many
The Four Market Structures
Perfect Competition
MonopolyMonopolistic Competition
BrandOligopoly
Number of Firms
Many One
The Four Market Structures
Perfect Competition
MonopolyMonopolistic Competition
BrandOligopoly
Number of Firms
Many One Many
The Four Market Structures
Perfect Competition
MonopolyMonopolistic Competition
BrandOligopoly
Number of Firms
Many One Many Few
The Four Market Structures
Perfect Competition
MonopolyMonopolistic Competition
BrandOligopoly
Number of Firms
Many One Many Few
Type of Product
The Four Market Structures
Perfect Competition
MonopolyMonopolistic Competition
BrandOligopoly
Number of Firms
Many One Many Few
Type of Product
Identical
The Four Market Structures
Perfect Competition
MonopolyMonopolistic Competition
BrandOligopoly
Number of Firms
Many One Many Few
Type of Product
Identical Unique
The Four Market Structures
Perfect Competition
MonopolyMonopolistic Competition
BrandOligopoly
Number of Firms
Many One Many Few
Type of Product
Identical Unique Differentiated
The Four Market Structures
Perfect Competition
MonopolyMonopolistic Competition
BrandOligopoly
Number of Firms
Many One Many Few
Type of Product
Identical Unique Differentiated Either
The Four Market Structures
Perfect Competition
MonopolyMonopolistic Competition
BrandOligopoly
Number of Firms
Many One Many Few
Type of Product
Identical Unique Differentiated Either
Ease of Entry
The Four Market Structures
Perfect Competition
MonopolyMonopolistic Competition
BrandOligopoly
Number of Firms
Many One Many Few
Type of Product
Identical Unique Differentiated Either
Ease of Entry
Easy
The Four Market Structures
Perfect Competition
MonopolyMonopolistic Competition
BrandOligopoly
Number of Firms
Many One Many Few
Type of Product
Identical Unique Differentiated Either
Ease of Entry
Easy Blocked
The Four Market Structures
Perfect Competition
MonopolyMonopolistic Competition
BrandOligopoly
Number of Firms
Many One Many Few
Type of Product
Identical Unique Differentiated Either
Ease of Entry
Easy Blocked Easy
The Four Market Structures
Perfect Competition
MonopolyMonopolistic Competition
BrandOligopoly
Number of Firms
Many One Many Few
Type of Product
Identical Unique Differentiated Either
Ease of Entry
Easy Blocked Easy Hard
The Four Market Structures
Perfect Competition
MonopolyMonopolistic Competition
BrandOligopoly
Number of Firms
Many One Many Few
Type of Product
Identical Unique Differentiated Either
Ease of Entry
Easy Blocked Easy Hard
Examples
The Four Market Structures
Perfect Competition
MonopolyMonopolistic Competition
BrandOligopoly
Number of Firms
Many One Many Few
Type of Product
Identical Unique Differentiated Either
Ease of Entry
Easy Blocked Easy Hard
ExamplesCommodities
Rice
The Four Market Structures
Perfect Competition
MonopolyMonopolistic Competition
BrandOligopoly
Number of Firms
Many One Many Few
Type of Product
Identical Unique Differentiated Either
Ease of Entry
Easy Blocked Easy Hard
ExamplesCommodities
RiceGovernment
Utilities
The Four Market Structures
Perfect Competition
MonopolyMonopolistic Competition
BrandOligopoly
Number of Firms
Many One Many Few
Type of Product
Identical Unique Differentiated Either
Ease of Entry
Easy Blocked Easy Hard
ExamplesCommodities
RiceGovernment
Utilities
Brands Clothing
Restaurants
The Four Market Structures
Perfect Competition
MonopolyMonopolistic Competition
BrandOligopoly
Number of Firms
Many One Many Few
Type of Product
Identical Unique Differentiated Either
Ease of Entry
Easy Blocked Easy Hard
ExamplesCommodities
RiceGovernment
Utilities
Brands Clothing
Restaurants
Manufacturing Cars
Computers
The Four Market Structures
Market Power
Market Power
Few versus Many
Perfect Competition
Perfect Competition
Many buyers and sellers
Similar Product Easy Entry
Perfect Competition
Perfect Competition
Price is the same because no one has
market power
Perfect Competition
Perfect Competition
No one has the power to raise the price or lower the
price
Perfect Competition
Perfect Competition
Price equals average revenue equals
marginal revenue All the same
Market
Perfect Competition
Market Individual
Perfect Competition
Market IndividualPrice is flat
Does not change with output Price = Marginal Revenue
Perfect Competition
Q0
1
2
3
4
5
6
7
8
9
10
Q0
1
2
3
4
5
6
7
8
9
10
Fixed Cost FC100
100
100
100
100
100
100
100
100
100
100
Q0
1
2
3
4
5
6
7
8
9
10
Fixed Cost FC100
100
100
100
100
100
100
100
100
100
100
Variable Cost VC
20
39
59
84
120
160
212
270
340
420
Q0
1
2
3
4
5
6
7
8
9
10
Fixed Cost FC100
100
100
100
100
100
100
100
100
100
100
Variable Cost VC
20
39
59
84
120
160
212
270
340
420
Total Cost TC
FC + VC100
120
139
159
184
220
260
312
370
440
520
Q0
1
2
3
4
5
6
7
8
9
10
Fixed Cost FC100
100
100
100
100
100
100
100
100
100
100
Variable Cost VC
20
39
59
84
120
160
212
270
340
420
Total Cost TC
FC + VC100
120
139
159
184
220
260
312
370
440
520
Average Total Cost ATC
TC ÷ Q
120.0
69.5
53.0
46.0
44.0
43.3
44.6
46.3
48.9
52.0
Q0
1
2
3
4
5
6
7
8
9
10
Fixed Cost FC100
100
100
100
100
100
100
100
100
100
100
Variable Cost VC
20
39
59
84
120
160
212
270
340
420
Total Cost TC
FC + VC100
120
139
159
184
220
260
312
370
440
520
Average Total Cost ATC
TC ÷ Q
120.0
69.5
53.0
46.0
44.0
43.3
44.6
46.3
48.9
52.0
Marginal Cost MC ∆TC ÷ ∆Q
20
19
20
25
36
40
52
58
70
80
Q0
1
2
3
4
5
6
7
8
9
10
Fixed Cost FC100
100
100
100
100
100
100
100
100
100
100
Variable Cost VC
20
39
59
84
120
160
212
270
340
420
Total Cost TC
FC + VC100
120
139
159
184
220
260
312
370
440
520
Average Total Cost ATC
TC ÷ Q
120.0
69.5
53.0
46.0
44.0
43.3
44.6
46.3
48.9
52.0
Marginal Cost MC ∆TC ÷ ∆Q
20
19
20
25
36
40
52
58
70
80
Price P
50
50
50
50
50
50
50
50
50
50
Q0
1
2
3
4
5
6
7
8
9
10
Fixed Cost FC100
100
100
100
100
100
100
100
100
100
100
Variable Cost VC
20
39
59
84
120
160
212
270
340
420
Total Cost TC
FC + VC100
120
139
159
184
220
260
312
370
440
520
Average Total Cost ATC
TC ÷ Q
120.0
69.5
53.0
46.0
44.0
43.3
44.6
46.3
48.9
52.0
Marginal Cost MC ∆TC ÷ ∆Q
20
19
20
25
36
40
52
58
70
80
Price P
50
50
50
50
50
50
50
50
50
50
Total Revenue
TR P x Q
50
100
150
200
250
300
350
400
450
500
Q0
1
2
3
4
5
6
7
8
9
10
Fixed Cost FC100
100
100
100
100
100
100
100
100
100
100
Variable Cost VC
20
39
59
84
120
160
212
270
340
420
Total Cost TC
FC + VC100
120
139
159
184
220
260
312
370
440
520
Average Total Cost ATC
TC ÷ Q
120.0
69.5
53.0
46.0
44.0
43.3
44.6
46.3
48.9
52.0
Marginal Cost MC ∆TC ÷ ∆Q
20
19
20
25
36
40
52
58
70
80
Price P
50
50
50
50
50
50
50
50
50
50
Total Revenue
TR P x Q
50
100
150
200
250
300
350
400
450
500
Profit PR
TR - TC
-70
-39
-9
16
30
40
38
30
10
-20
0
10
20
30
40
50
60
70
80
90
100
1 2 3 4 5 6 7 8 9 10
0
10
20
30
40
50
60
70
80
90
100
0 1 2 3 4 5 6 7 8 9 10
Price = Average Revenue = Marginal Revenue
MC≤MRAre you making
profit on the next
unit?
Two Questions
Two Questions1. How much quantity to produce? !
!
2. How much profit?
Two Questions
MC= MR !
!
Profit = TR - TC = (Price x Q) - (ATC x Q)
1. How much quantity to produce? !
!
2. How much profit?
Perfect Competition
Perfect Competition$
Quantity
P
Perfect Competition$
Quantity
Demand=MR
P
Perfect Competition$
Quantity
Demand=MR
1. MR=MC?
P
Perfect Competition
Marginal Cost MC
$
Quantity
Demand=MR
1. MR=MC?
P
Perfect Competition
Marginal Cost MC
$
Quantity
Demand=MR
1. MR=MC?
Q
P
Perfect Competition
Marginal Cost MC
$
Quantity
Demand=MR
1. MR=MC?
Q
P
Perfect Competition
Marginal Cost MC
$
Quantity
Demand=MR
1. MR=MC?2. TR= P x Q
Q
P
Perfect Competition
Marginal Cost MC
$
Quantity
Demand=MR
1. MR=MC?2. TR= P x Q
Total Revenue
Q
P
Perfect Competition
Marginal Cost MC
$
Quantity
Demand=MR
1. MR=MC?2. TR= P x Q3. TC=ATC x Q
Total Revenue
Q
P
Perfect Competition
Marginal Cost MC Average Cost
ATC
$
Quantity
Demand=MR
1. MR=MC?2. TR= P x Q3. TC=ATC x Q
Total Revenue
Q
P
Perfect Competition
Marginal Cost MC Average Cost
ATC
$
Quantity
Demand=MR
1. MR=MC?2. TR= P x Q3. TC=ATC x Q
Total Revenue
Q
P
Perfect Competition
Marginal Cost MC Average Cost
ATC
$
Quantity
Demand=MR
1. MR=MC?2. TR= P x Q3. TC=ATC x Q
Total Revenue
Q
P
Perfect Competition
Marginal Cost MC Average Cost
ATC
Total Cost
$
Quantity
Demand=MR
1. MR=MC?2. TR= P x Q3. TC=ATC x Q
Q
P
Perfect Competition
Marginal Cost MC Average Cost
ATC
Total Cost
$
Quantity
Demand=MR
1. MR=MC?2. TR= P x Q3. TC=ATC x Q4. Profit =TR-TC or (P-ATC) x Q
Q
P
Perfect Competition
Marginal Cost MC Average Cost
ATC
Total Cost
$
Quantity
ProfitDemand=MR
1. MR=MC?2. TR= P x Q3. TC=ATC x Q4. Profit =TR-TC or (P-ATC) x Q
P
Perfect Competition$
Quantity
Demand=MR
P
Perfect Competition$
Quantity
Demand=MR
1. MR=MC?
P
Perfect Competition
Marginal Cost MC
$
Quantity
Demand=MR
1. MR=MC?
P
Perfect Competition
Marginal Cost MC
$
Quantity
Demand=MR
1. MR=MC?
Q
P
Perfect Competition
Marginal Cost MC
$
Quantity
Demand=MR
1. MR=MC?
Q
P
Perfect Competition
Marginal Cost MC
$
Quantity
Demand=MR
1. MR=MC?2. TR= P x Q
Q
P
Perfect Competition
Marginal Cost MC
$
Quantity
Demand=MR
1. MR=MC?2. TR= P x QTotal Revenue
Q
P
Perfect Competition
Marginal Cost MC
$
Quantity
Demand=MR
1. MR=MC?2. TR= P x Q3. TC=ATC x Q
Total Revenue
Q
P
Perfect Competition
Marginal Cost MC Average Cost
ATC
$
Quantity
Demand=MR
1. MR=MC?2. TR= P x Q3. TC=ATC x Q
Total Revenue
Q
P
Perfect Competition
Marginal Cost MC Average Cost
ATC
$
Quantity
Demand=MR
1. MR=MC?2. TR= P x Q3. TC=ATC x Q
Total Revenue
Q
P
Perfect Competition
Marginal Cost MC Average Cost
ATC
$
Quantity
Demand=MR
1. MR=MC?2. TR= P x Q3. TC=ATC x Q
Total Revenue
Q
P
Perfect Competition
Marginal Cost MC Average Cost
ATC
Total Cost
$
Quantity
Demand=MR
1. MR=MC?2. TR= P x Q3. TC=ATC x Q
Q
P
Perfect Competition
Marginal Cost MC Average Cost
ATC
Total Cost
$
Quantity
Demand=MR
1. MR=MC?2. TR= P x Q3. TC=ATC x Q4. Profit =TR-TC or (P-ATC) x Q
Q
P
Perfect Competition
Marginal Cost MC Average Cost
ATC
Total Cost
$
Quantity
ProfitDemand=MR
1. MR=MC?2. TR= P x Q3. TC=ATC x Q4. Profit =TR-TC or (P-ATC) x Q
Perfect Competition
Perfect Competition$
Quantity
P
Perfect Competition$
Quantity
Demand=MR
P
Perfect Competition$
Quantity
Demand=MR
1. MR=MC?
P
Perfect Competition
Marginal Cost MC
$
Quantity
Demand=MR
1. MR=MC?
P
Perfect Competition
Marginal Cost MC
$
Quantity
Demand=MR
1. MR=MC?
Q
P
Perfect Competition
Marginal Cost MC
$
Quantity
Demand=MR
1. MR=MC?
Q
P
Perfect Competition
Marginal Cost MC
$
Quantity
Demand=MR
1. MR=MC?2. TR= P x Q
Q
P
Perfect Competition
Marginal Cost MC
$
Quantity
Demand=MR
1. MR=MC?2. TR= P x Q
Total Revenue
Q
P
Perfect Competition
Marginal Cost MC
$
Quantity
Demand=MR
1. MR=MC?2. TR= P x Q3. TC=ATC x Q
Total Revenue
Q
P
Perfect Competition
Marginal Cost MC Average Cost
ATC
$
Quantity
Demand=MR
1. MR=MC?2. TR= P x Q3. TC=ATC x Q
Total Revenue
Q
P
Perfect Competition
Marginal Cost MC Average Cost
ATC
$
Quantity
Demand=MR
1. MR=MC?2. TR= P x Q3. TC=ATC x Q
Total Revenue
Q
P
Perfect Competition
Marginal Cost MC Average Cost
ATC
$
Quantity
Demand=MR
1. MR=MC?2. TR= P x Q3. TC=ATC x Q
Total Revenue
Q
P
Perfect Competition
Marginal Cost MC Average Cost
ATC
Total Cost
$
Quantity
Demand=MR
1. MR=MC?2. TR= P x Q3. TC=ATC x Q
Q
P
Perfect Competition
Marginal Cost MC Average Cost
ATC
Total Cost
$
Quantity
LossDemand=MR
1. MR=MC?2. TR= P x Q3. TC=ATC x Q4. Profit =TR-TC or (P-ATC) x Q