1. Chapter 5: Competition and Monopoly: Virtues and Vices
Contemporary Economics: An Applications Approach By Robert J. Carbaugh 1st Edition
Chapter 5:
Competition and Monopoly: Virtues and Vices

2. Market equilibrium facing competitive firm
Perfect Competition
Market equilibrium facing competitive firm
Price
Market supply
Market demand
Carbaugh, Chap. 5

3. Demand and revenue for a competitive firm
Perfect Competition
Demand and revenue for a competitive firm
Demand and Marginal Revenue for one company
Total revenue $ $
Total revenue
Demand = P = MR 7 1
Carbaugh, Chap. 5

4. Short-run economic profit/loss for a competitive firm
Perfect Competition
Short-run economic profit/loss for a competitive firm
Profit maximization
Loss minimization $ $ MC
Total loss = $2,128 MC
Demand= P = MR A
ATC
ATC
5.33
AVC
Total profit = $2,500
Demand= P = MR
700
1600
Carbaugh, Chap. 5

5. Short-run supply curves for a competitive firm and market
Perfect Competition
Short-run supply curves for a competitive firm and market
Individual firm’s supply curve
Market supply curve $ $
Firm’s short-run supply curve
Market’s short-run supply curve MC
Supply
AVC
700
1600
700,000
1,600,000
Carbaugh, Chap. 5

6. Long-run adjustments for a competitive firm: effects of market entry
Perfect Competition
Long-run adjustments for a competitive firm: effects of market entry
Market
Individual firm
Price S0
Price and cost S1
Demand0 = Price0
LRATC A
Demand1 = Price1 D0
500
Carbaugh, Chap. 5

7. Long-run adjustments for a competitive firm: effects of market exit
Perfect Competition
Long-run adjustments for a competitive firm: effects of market exit
Market
Individual firm
Price S1
Price and cost
LRATC S2 A
Demand1 = Price1
Demand2 = Price2 D0
500
Carbaugh, Chap. 5

8. Economies of scale and natural monopoly
Hypothetical electric utility’s cost curve B A
ATC
Carbaugh, Chap. 5

9. Price and marginal revenue for a monopolist
Monopoly
Price and marginal revenue for a monopolist
Demand and revenue schedules for a monopolist $
Quantity Price Total Marginal
(dollars) Revenue Revenue
0 4,
1 3,600 3,600 3,600
2 3,200 6,400 2,800
3 2,800 8,400 2,000
4 2,400 9,600 1,200
5 2,000 10,
6 1,600 9,
Demand = Price MR
Carbaugh, Chap. 5

10. Profit maximization/loss minimization for a monopolist
Monopoly
Profit maximization/loss minimization for a monopolist
Profit maximization
Loss minimization $ $
Losses = $1,600
Profits = $3,200 MC A MC
ATC A
ATC
AVC B C B
Demand = Price
Demand = Price MR MR
Carbaugh, Chap. 5