Transcript PPP-chapter 7 [PPT]

7
#
Pure Competition
McGraw-Hill/Irwin
Copyright © 2013 by The McGraw-Hill Companies, Inc. All rights reserved.
Profit Maximization: MR-MC Approach
Cost and Revenue
$200
MR = MC
150
MC
P=$131
MR = P
ATC
Economic Profit
100
AVC
A=$97.78
50
0
1
2
3
4
5
6
7
8
9
10
Output
LO3
7-2
Loss-Minimizing Case
$200
Cost and Revenue
MC
150
Loss
A=$91.67
AVC
100
P=$81
50
0
LO3
ATC
MR = P
V = $75
1
2
3
4
5
6
Output
7
8
9
10
7-3
Shutdown Case
Cost and Revenue
$200
MC
150
ATC
V = $74
100
AVC
MR = P
P=$71
Short-Run Shutdown Point
P < Minimum AVC
$71 < $74
50
0
1
2
3
4
5
6
7
8
9
10
Output
LO3
7-4
Cost and Revenues (Dollars)
Marginal Cost and Short-Run Supply
S
e
P5
P3
P2
P1
MR5
d
P4
MC
ATC
c
AVC
b
a
MR4
MR3
MR2
MR1
Shut-Down Point
(If P is Below)
0
Q2
Q3
Q4
Q5
Quantity Supplied
LO4
7-5