Principles of Economics Session 6
Principles of Economics Session 6
Topics To Be Covered ◆ Market structure Characteristics of Perfectly Competitive Market Profit Maximization for a Competitive Firm Zero-Profit point and shut-Down point Short-Run Supply curve ◆ Long-Run Supply Curve ◆ Producer Surplus Pricing Information
Topics To Be Covered Market Structure Characteristics of Perfectly Competitive Market Profit Maximization for a Competitive Firm Zero-Profit Point and Shut-Down Point Short-Run Supply Curve Long-Run Supply Curve Producer Surplus Pricing Information
Market structure ◆ Perfect Competition ◆ Monopoly ◆ Oligopoly Monopolistic Competition
Market Structure Perfect Competition Monopoly Oligopoly Monopolistic Competition
Characteristics of Perfectly Competitive Market Many buyers and sellers ◆ Product homogeneity ◆ Free entry and exit ◆ Price taking
Characteristics of Perfectly Competitive Market Many buyers and sellers Product homogeneity Free entry and exit Price taking
Product Homogeneity The products of all firms are perfect substitutes Y Examples: Agricultural products, oil, copper, iron, lumber
Product Homogeneity The products of all firms are perfect substitutes. Examples: Agricultural products, oil, copper, iron, lumber
Free Entry and Exit Buvers can easily switch from one supplier to another. Suppliers can easily enter or exit a market
Free Entry and Exit Buyers can easily switch from one supplier to another. Suppliers can easily enter or exit a market
Price Taking The individual firm sells a very small share of the total market output and, therefore, cannot influence market price o The individual consumer buys too small a share of industry output to have any impact on market price. Buyers and sellers in competitive markets are said to be price takers, for they must accept the price determined by the market
Price Taking The individual firm sells a very small share of the total market output and, therefore, cannot influence market price. The individual consumer buys too small a share of industry output to have any impact on market price. Buyers and sellers in competitive markets are said to be price takers, for they must accept the price determined by the market
Demand Faced by a competitive Firm Industry Firm $4 Q
Demand Faced by a Competitive Firm Q P $4 d Industry Firm D $4 P Q
Price Elasticity of Demand P Individual producer sells all units for $4 regardless of the producer's level of output, so price under $4 is irrational. If the roducer tries to raise price, sales are zero The price elasticity of demand for products of a single firm IS
Individual producer sells all units for $4 regardless of the producer’s level of output, so price under $4 is irrational. If the producer tries to raise price, sales are zero. The price elasticity of demand for products of a single firm is Price Elasticity of Demand E=∞
Revenue of a Perfectly Competitive Firm Total revenue for a firm is the selling price times the quantity sold. TR=PXO
Revenue of a Perfectly Competitive Firm Total revenue for a firm is the selling price times the quantity sold. TR=P×Q