Output Input; ceteris paribus The law of diminishing marginal return.

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Presentation transcript:

Output Input; ceteris paribus The law of diminishing marginal return

$ Output, Q specialization TVC 45º TFC Diminishing return Total Cost

$ Quantity MC ATC =AVC+AFC AVC AFC Unit Cost

$ Q ATC 1 ATC 2 ATC 3 LRAC Economies of scale Unit Cost

$ Output ATC Technological improvement Unit Cost

$ Q $ Q D D △P△P △P△P △Q△Q △Q△Q Price Elasticity

$ Q D △P△P △P△P △Q△Q △Q△Q Elasticity along the Demand Curve

$ Out put $ D D △P△P △P△P △Q△Q △Q△Q Price elasticity and Revenue

Price Quantity Q* MC MR Profit Maximizing Output, Q*

Market Demand & Supply P P* Q Q* S D

The Market Supply Curve P Q S

The Demand Curve P Q D

P Q D = AR MR

The firm’s supply (curve) $ OUTPUT MC ATC AVC

Profit maximizing output, Q* $ P* OUTPU T Q* MC MR

Perfectly Competitive Market $ Q $ Q D∑MCMC ATC P* Market Firm

$ Q D S Profit attracts new entry

$ Q D S $ Q D S $ Q D S

$ Q $ Q DSMC ATC AR=MR Perfectly Competitive Market MarketFirm

$ Output MR(Long term) ATC MC MR(Short term) Equilibrium in Perfectly Competitive Market

$ Q $ Q DSMC ATC D1 A sudden change in Demand

$ Q Pm MC ATC D=AR MR Qm Monopoly

$ Q D ATC (Long term) Natural Monopoly

Price Discriminating Monopoly $ Q D=MR AC MC Qm

Price Discriminating vs. Mono-price Monopoly $ Q D AC MC Qm MR

$ Q ATC MC D P Pm QQm Monopoly vs. Perfect Competition

Monopolistically Competitive Market $ Q MR ATC MC D

Oligopoly $ Q MC D MR

$ Q D S $ Q D S Price Ceiling /Rent ControlMinimum Price / Wage

$ Q D S Production Control/ Quota

$ Q D S Consumer surplus producer surplus

$ Q D $ Q S ┌MRP = MP*MR └MRP = W Labor Market : Demand/ Supply

$ Q D MC S=AC P* Q* Monopsony Q P

% Funds D S

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