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Asignatura: Microeconomía, Profesor: Pilar Grau, Carrera: Administración y dirección de empresas, Universidad: URJC
Tipo: Apuntes
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1 Perfectly Competitive Markets 2 Profit maximization 3 Marginal Revenue, Marginal Cost, and Profit Maximization 4 Choosing Output in the Short Run 5 The Competitive Firm’s Short-Run Supply Curve 6 The Short-Run Market Supply Curve 7 Choosing Output in the Long-Run 8 The Industry’s Long-Run Supply Curve
1
Because each individual firm sells a sufficiently small proportion of total
market output, its decisions have no impact on market price.
of its product above the price of other firms without losing most or all of its business.
In contrast, when products are heterogeneous, each firm has the opportunity to raise its price above that of its competitors without losing all of its sales.
2
Do Firms Maximize Profit?
The assumption of profit maximization is frequently used in
3
A firm chooses output q *, so that profit, the difference AB between revenue R and cost C , is maximized. At that output, marginal revenue (the slope of the revenue curve) is equal to marginal cost (the slope of the cost curve).
FIGURE 1
both its average revenue curve and its marginal revenue curve. Along this demand curve, marginal revenue, average revenue, and price are all equal.
Profit Maximization by a Competitive Firm
Because each firm in a competitive industry sells only a small fraction
A perfectly competitive firm should choose its output so that marginal
cost equals price:
When Should the Firm Shut Down?
FIGURE 4
A competitive firm should shut down if price is below AVC. The firm may produce in the short run if price is greater than average variable cost.
6
FIGURE 7
The short-run industry supply curve is the summation of the supply curves of the individual firms. Because the third firm has a lower average variable cost curve than the first two firms, the market supply curve S begins at price P 1 and follows the marginal cost curve of the third firm MC 3 until price equals P 2 , when there is a kink. For P 2 and all prices above it, the industry quantity supplied is the sum of the quantities supplied by each of the three firms.
FIGURE 9
The producer surplus for a market is the area below the market price and above the market supply curve, between 0 and output Q*.
FIGURE 11
Initially the long-run equilibrium price of a product is $40 per unit, shown in (b) as the intersection of demand curve D and supply curve S 1. In (a) we see that firms earn positive profits because long-run average cost reaches a minimum of $30 (at q 2 ). Positive profit encourages entry of new firms and causes a shift to the right in the supply curve to S 2 , as shown in (b). The long-run equilibrium occurs at a price of $30, as shown in (a) , where each firm earns zero profit and there is no incentive to enter or exit the industry.
8 The Industry’s^ Long-Run Supply^ Curve
Constant-Cost Industry
In (b) , the long-run supply curve in a constant-cost industry is a horizontal line SL. When demand increases, initially causing a price rise, the firm initially increases its output from q 1 to q 2 , as shown in (a). But the entry of new firms causes a shift to the right in industry supply. Because input prices are unaffected by the increased output of the industry, entry occurs until the original price is obtained (at
FIGURE 13
8 The Industry’s^ Long-Run Supply^ Curve
Increasing-Cost Industry
FIGURE 14
In (b) , the long-run supply curve in an increasing-cost industry is an upward-sloping curve SL. When demand increases, initially causing a price rise, the firms increase their output from q 1 to q 2 in (a). In that case, the entry of new firms causes a shift to the right in supply from S 1 to S 2. Because input prices increase as a result, the new long-run equilibrium occurs at a higher price than the initial equilibrium.^ In an increasing-cost industry, the long-run industry supply curve is upward sloping.
FIGURE 16
An output tax placed on all firms in a competitive market shifts the supply curve for the industry upward by the amount of the tax. This shift raises the market price of the product and lowers the total output of the industry.
Long-Run Elasticity of Supply
The long-run elasticity of industry supply is defined in the same way as
In a constant-cost industry, the long-run supply curve is horizontal, and the long-run supply elasticity is infinitely large. (A small increase in price will induce an extremely large increase in output.) In an increasing-cost industry, however, the long-run supply elasticity will be positive but finite.
Because industries can adjust and expand in the long run, we would generally expect long-run elasticities of supply to be larger than short-run elasticities.
The magnitude of the elasticity will depend on the extent to which input costs increase as the market expands. For example, an industry that depends on inputs that are widely available will have a more elastic long-run supply than will an industry that uses inputs in short supply.
