Chapter 8 Profit Maximization and Competitive Supply
Chapter 8 Profit Maximization and Competitive Supply
Topics to be Discussed a Perfectly Competitive Markets ■ Profit maximization a Marginal Revenue, Marginal Cost, and Profit maximization a Choosing Output in the Short-Run Chapter 8 Slide 2
Chapter 8 Slide 2 Topics to be Discussed ◼ Perfectly Competitive Markets ◼ Profit Maximization ◼ Marginal Revenue, Marginal Cost, and Profit Maximization ◼ Choosing Output in the Short-Run
Topics to be Discussed a The Competitive Firm's Short-Run Supply Curve a Short-Run Market Supply a Choosing Output in the Long-Run a The Industry's Long-Run Supply Curve Chapter 8 Slide 3
Chapter 8 Slide 3 Topics to be Discussed ◼ The Competitive Firm’s Short-Run Supply Curve ◼ Short-Run Market Supply ◼ Choosing Output in the Long-Run ◼ The Industry’s Long-Run Supply Curve
Perfectly Competitive Markets a Characteristics of Perfectly competitive Markets Price taking 2)Product homogeneity 3) Free entry and exit Chapter 8 Slide 4
Chapter 8 Slide 4 Perfectly Competitive Markets ◼ Characteristics of Perfectly Competitive Markets 1) Price taking 2) Product homogeneity 3) Free entry and exit
Perfectly Competitive Markets a Price Taking o 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 Chapter 8 Slide 5
Chapter 8 Slide 5 Perfectly Competitive Markets ◼ 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
Perfectly Competitive Markets a Product Homogeneity o The products of all firms are perfect substitutes ● EXamples Agricultural products, oil, copper, iron lumber Chapter 8 Slide 6
Chapter 8 Slide 6 Perfectly Competitive Markets ◼ Product Homogeneity ⚫ The products of all firms are perfect substitutes. ⚫ Examples ◆Agricultural products, oil, copper, iron, lumber
Perfectly Competitive Markets ■ Free Entry and Exit o Buyers can easily switch from one supplier to another o Suppliers can easily enter or exit a market Chapter 8 Slide 7
Chapter 8 Slide 7 Perfectly Competitive Markets ◼ Free Entry and Exit ⚫ Buyers can easily switch from one supplier to another. ⚫ Suppliers can easily enter or exit a market
Perfectly Competitive Markets a Discussion Questions o What are some barriers to entry and exit? o Are all markets competitive? o When is a market highly competitive? Chapter 8 Slide 8
Chapter 8 Slide 8 Perfectly Competitive Markets ◼ Discussion Questions ⚫ What are some barriers to entry and exit? ⚫ Are all markets competitive? ⚫ When is a market highly competitive?
Profit maximization a Do firms maximize profits? o Possibility of other objectives ◆ Revenue maximization Dividend maximization Short-run profit maximization Chapter 8 Slide 9
Chapter 8 Slide 9 Profit Maximization ◼ Do firms maximize profits? ⚫ Possibility of other objectives ◆Revenue maximization ◆Dividend maximization ◆Short-run profit maximization
Profit maximization a Do firms maximize profits? o Implications of non-profit objective .Over the long-run investors would not support the company .Without profits, survival unlikely Chapter 8 Slide 10
Chapter 8 Slide 10 Profit Maximization ◼ Do firms maximize profits? ⚫ Implications of non-profit objective ◆Over the long-run investors would not support the company ◆Without profits, survival unlikely