Q012345TC MC ∆TC / ∆Q ∆TC / 1 ∆TC / ∆Q 1/11/11/11/1 ∆TC / 1 2/12/12/12/1 Table A

= Q MR MC Additional profit

Perfect Competition

Entire Market A Single Perfect Competitor S D 10 D P Q P Q in millions in hundreds Why not raise the price? Why not lower the price? No revenue Less revenue

Q0123P TR MR P = MR D = P D = P = MR

Average Cost (AC) Total Cost (TC) Q1234

TR = 60 Profits = Total Revenue – Total Costs Example… P = 10 Q = 6 TR = ? AC = 7 TC = 42 TC = ? Profits= 60 – 42 = 18 Profits = 60 – 42 = 18

60 P, MR, MC, AC Q 10 MC D = MR = P 6 7 Profit Maximization MC = MR Profit = TRTC – 42 = 18 Profit AC

Economic Profits = 0 Normal Profits EP means firms in this market are earning more than firms in other markets. MC D = MR AC S D 88 1, S2S2S2S2 3 P > AC 1,500 P QQ PMC MR AC P, MC, MR, AC Market for Widgets Widget Firm One firm produces only a small amount of the market’s total. Economic Profit D = MR P = AC

P, MR, MC, AC Q 8 MC D = MR = P 10 6 TR = ? TC = ? Profit = ? AC 2 10

P, MR, MC, AC Q 8 MC D = MR = P TR = ? TC = ? Profit = ? AC

P, MR, MC, AC Q 8 MC D = MR = P 10 TR = ? TC = ? Profit = ? AC

Monopoly

D Q P q1q1q1q1 p1p1p1p1 q2q2q2q2 p2p2p2p2

Q012345P TR MR MR < P Table C

MR D PMR P, MR Q Q012345P MR Table C

p At the given quantity “q,” what is my AC? At the given quantity “q,” what price can I charge? 8 ac 10 5 Profit = TR – TC TC = AC × Q TR = P × Q How much profit? D MR MC AC Q P, MC, MR, AC q Profit Maximization MC = MR Profit What is TC? What is TR?

intermission

P, MR, MC, AC Q MC D = MR = P 10 9 AC

D MR MC AC Q P, MC, MR, AC

AC Q AC 1B 100M M Satellite Radio Cost of 1 Satellite: $1 Billion Having more than one company will divide the market, drop Q, and increase AC.

Monopolistic Competition

d d d d d D Q P d

D MR MC AC Q P, MC, MR, AC

D MR MC AC Q TR = 55 TC = 30 Profit = 25

D MR MC AC Q P, MC, MR, AC TR = 45 TC = 60 Profit = -15

10 5 D MR MC AC Q P, MC, MR, AC TR = 50 TC = 50 Profit = 0 Economic profit is 0 Normal profit Long-Run Equilibrium