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University of Hawai‘i at Mānoa Department of Economics

University of Hawai‘i at Mānoa Department of Economics. ECON 130 (003): Principles of Economics (Micro) http://www2.hawaii.edu/~lindoj Gerard Russo Lecture #19 Tuesday, March 16, 2004. ANNOUNCEMENTS. REVIEW SESSION Thursday, March 18, 2004, 4:30-5:30 PM BIL 152 MID-TERM EXAMINATION #2

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University of Hawai‘i at Mānoa Department of Economics

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  1. University of Hawai‘i at MānoaDepartment of Economics ECON 130 (003): Principles of Economics (Micro) http://www2.hawaii.edu/~lindoj Gerard Russo Lecture #19 Tuesday, March 16, 2004

  2. ANNOUNCEMENTS • REVIEW SESSION • Thursday, March 18, 2004, 4:30-5:30 PM BIL 152 • MID-TERM EXAMINATION #2 • Tuesday, March 30, 2004, 12:00-1:15 PM BIL 152

  3. LECTURE 19 • The Perfectly Competitive Firm in the Short-Run: Short-Run Firm Supply • Short-Run vs. Long-Run • The Perfectly Competitive Industry in the Short-Run: Short-Run Industry Supply

  4. Profit Maximization TR equals the area of rectangle 0P0FQ*. TC equals the area of rectangle 0ABQ*. Therefore, Profits equal the area of AP0FB. TVC equals the area of rectangle 0ECQ*. TFC equals the area of rectangle EABC. $/Q MC ATC P0 F• Economic Profit B AVC A• • E• • C 0 Q Q*

  5. Profit Maximization TR equals the area of rectangle 0P0BQ0. TC equals the area of rectangle 0P0BQ0. Therefore, Profits equal zero. TVC equals the area of rectangle 0ECQ0. TFC equals the area of rectangle EP0BC. $/Q MC ATC AVC B P0 • E• • C Firm demand: P=AR=MR 0 Q0 Q

  6. Profit Maximization $/Q Are the firm’s profits positive, negative or zero? Should the firm shut-down or continue to operate? MC ATC AVC B A• • Economic Loss F• P0 E• • C Firm demand: P=AR=MR 0 Q0 Q

  7. Firm Supply $/Q MC ATC AVC P2• • P2=AR2=MR2 P1• • P1=AR1=MR1 P0• • P0=AR0=MR0 0 Q0 Q1 Q2 Q

  8. What is the level of Firm Profit? Are Profits Positive, Negative, or Zero? Perfectly Competitive Firm Perfectly Competitive Industry $/q $/q MC Supply ATC PE PE=AR=MR AVC Demand quantity (thousands) QE 0 qE Quantity (milllions)

  9. What is the level of Firm Profit? Are Profits Positive, Negative, or Zero? Perfectly Competitive Firm Perfectly Competitive Industry $/q $/q MC Supply ATC PE=AR=MR PE AVC Demand qE quantity (thousands) 0 QE Quantity (milllions)

  10. What is the level of Firm Profit? Are Profits Positive, Negative, or Zero? Perfectly Competitive Firm Perfectly Competitive Industry $/q $/q MC Supply ATC PE PE=AR=MR AVC Demand qE quantity (thousands) 0 QE Quantity (milllions)

  11. What is the level of Firm Profit? Are Profits Positive, Negative, or Zero? Perfectly Competitive Firm Perfectly Competitive Industry $/q $/q MC Supply ATC AVC PE=AR=MR PE Demand quantity (thousands) QE 0 Quantity (milllions) qE

  12. Industry Supply is the Summation of the Firms’ Supply Perfectly Competitive Industry Perfectly Competitive Firm $/q $/q MC D3 Supply ATC P3 P3=AR3=MR3 P2 P2=AR2=MR2 AVC P1=AR1=MR1 P1 D2 D1 quantity (thousands) Q2 =Σqi Q3 =Σqi 0 q1 q2 q3 Q1 =Σqi Q(milllions)

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