Ch 14. Firms In Competitive Markets

.title[
# Ch 14. Firms In Competitive Markets
]
.subtitle[
## Microeconomics for Students of Accounting, Finance, and Digital Applications
]
.author[
### Lyuben Ivanov, PhD
]
.institute[
### Sofia University St. Kliment Ohridski
]
.date[
### Fall Term 2024/2025
]

---

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  .font200[
<strong>  Introduction</strong>
]
<hr>

---

# Introduction

This course is designed to

<table class="none">
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    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-chevron-circle-right"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">introduce YOU to the basic concepts and models of microeconomics</td>
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</table>

YOU have already learned a lot about

<table class="none">
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    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-chevron-circle-right"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">how investment in common stocks can potentially increase the growth rate of YOUR savings</td>
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</table>

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-chevron-circle-right"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">the importance of profitability and the growth prospects of the underlying business</td>
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</table>

<table class="none">
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    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-chevron-circle-right"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">why profitability requires revenue generation which in turn requires production, resulting in costs of production</td>
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</table>

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Now YOU are going to learn how the market structure in which a business operates determines its long-run profitability!

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  .font200[
<strong>  Revenues In Competitive <br>&nbsp;Markets</strong>
]
<hr>

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# Defining Competitive Market

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top; width: 150px;"><b>competitive market</b></td>
    <td> </td>
    <td> </td>
    <td style="vertical-align: top;">a market with many buyers and sellers trading identical products so that each buyer and seller is a price taker</td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-globe"></i></td>
    <td> </td>
    <td> </td>
    <td> the market for wheat, corn, milk, eggs, copper, publicly-traded shares of an S&P 500 company, etc. </td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-lightbulb-o"></i></td>
    <td> </td>
    <td> </td>
    <td> for a market to be competitive there should be a freedom of entry and exit in the market </td>
  </tr>
</table>

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class: clear, middle, no-scribble
  
  .font200[
<strong>  The Revenue Of A Competitive <br>&nbsp;Firm</strong>
]
<hr>

---

# Defining Total Revenue

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top; width: 150px;"><b>total revenue</b></td>
    <td> </td>
    <td> </td>
    <td style="vertical-align: top;">a flow of financial assets from consumers to the firm; amount (of money!) a firm receives for the sale of its output</td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-globe"></i></td>
    <td> </td>
    <td> </td>
    <td> a farm that produces 10 000 liters of milk per month and sells it at a price P equal to 3 BGN per liter gets a total revenue (TR) of P &times; Q = 3 &times; 10,000 = $30,000 BGN per month </td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-lightbulb-o"></i></td>
    <td> </td>
    <td> </td>
    <td> we are interested in total revenue because it is a stepping stone towards determining the firm's profit </td>
  </tr>
</table>

---
background-image: url(hny25.png)
---

# Defining Average Revenue

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top; width: 150px;"><b>average revenue</b></td>
    <td> </td>
    <td> </td>
    <td style="vertical-align: top;">total revenue divided by the quantity of the product sold</td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-globe"></i></td>
    <td> </td>
    <td> </td>
    <td> a farm that receives 10 000 BGN for selling 5,000 liters of milk per month gets an average monthly revenue (AR) equal to 2 BGN per liter (AR = TR/Q = 10,000/5,000 = $2) </td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-lightbulb-o"></i></td>
    <td> </td>
    <td> </td>
    <td> for every firm the AR must be equal to P due to how TR and AR are defined (AR = TR/Q = (P&times;Q)/Q = P) </td>
  </tr>
</table>

---

# Average Revenue Calculation Exercise

<table class="none">
        <thead>
            <tr>
                <th>Quantity <br>(Q)</th>
                <th>Price <br>(P)</th>
                <th>Total Revenue <br> (TR = P &times; Q)</th>
                <th>Average Revenue <br>(AR = TR / Q)</th>
            </tr>
        </thead>
        <tbody>
            <tr> 
                <td style="border-top: 3px solid black; text-align: center;">1 liter</td>
                <td style="border-top: 3px solid black; text-align: center;">4 BGN</td>
                <td style="border-top: 3px solid black; text-align: center;">4 BGN</td>
                <td style="border-top: 3px solid black; text-align: center;">4 BGN</td>
            </tr>
            <tr>
                <td style="text-align: center;">2</td>
                <td style="text-align: center;">4</td>
                <td style="text-align: center;" class="can-edit"></td>
                <td style="text-align: center;" class="can-edit"></td>
            </tr>
            <tr>
                <td style="text-align: center;">3</td>
                <td style="text-align: center;">4</td>
                <td style="text-align: center;" class="can-edit"></td>
                <td style="text-align: center;" class="can-edit"></td>
            </tr>
            <tr>
                <td style="text-align: center;">4</td>
                <td style="text-align: center;">4</td>
                <td style="text-align: center;" class="can-edit"></td>
                <td style="text-align: center;" class="can-edit"></td>
            </tr>
            <tr>
                <td style="text-align: center;">5</td>
                <td style="text-align: center;">4</td>
                <td style="text-align: center;" class="can-edit"></td>
                <td style="text-align: center;" class="can-edit"></td>
            </tr>
            <tr>
                <td style="text-align: center;">6</td>
                <td style="text-align: center;">4</td>
                <td style="text-align: center;" class="can-edit"></td>
                <td style="text-align: center;" class="can-edit"></td>
            </tr>
        </tbody>
</table>

---

# Defining Marginal Revenue

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top; width: 150px;"><b>marginal revenue</b></td>
    <td> </td>
    <td> </td>
    <td style="vertical-align: top;">the change in total revenue from an additional unit sold</td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-globe"></i></td>
    <td> </td>
    <td> </td>
    <td> a farm that sells its milk at a constant price P equal to 2 BGN per liter gets marginal revenue MR equal to 2 BGN when selling an extra liter of milk </td>
  </tr>
  <tr style="background-color: transparent;">
  <td>   </td>
  <td>   </td>
  <td>   </td>
  <td>   </td>  
  </tr>
  <tr style="background-color: transparent;">
    <td style="text-align: center; vertical-align: top;"><i class="fa fa-lightbulb-o"></i></td>
    <td> </td>
    <td> </td>
    <td> since for a competitive firm the price is the same for every quantity of output, the MR must necessarily be a constant equal to P (MR = &Delta;TR/&Delta;Q = (P×&Delta;Q)/&Delta;Q = P) </td>
  </tr>
</table>

---

# Marginal Revenue Calculation Exercise

<table class="none">
        <thead>
            <tr>
                <th>Quantity <br>(Q)<br>(liters)</th>
                <th>Price <br>(P)<br>(BGN)</th>
                <th>Total Revenue <br> (TR = P&times;Q)</th>
                <th>Average Revenue <br>(AR = TR/Q)</th>
                <th>Marginal Revenue <br>(MR = &Delta;TR/&Delta;Q)</th>
            </tr>
        </thead>
        <tbody>
            <tr> 
                <td style="border-top: 3px solid black; text-align: center;">1</td>
                <td style="border-top: 3px solid black; text-align: center;">3</td>
                <td style="border-top: 3px solid black; text-align: center;">3 BGN</td>
                <td style="border-top: 3px solid black; text-align: center;">3 BGN</td>
                <td style="border-top: 3px solid black; text-align: center;">3 BGN</td>
            </tr>
            <tr>
                <td style="text-align: center;">2</td>
                <td style="text-align: center;">3</td>
                <td style="text-align: center;">6</td>
                <td style="text-align: center;" class="can-edit"></td>
                <td style="text-align: center;" class="can-edit"></td>
            </tr>
            <tr>
                <td style="text-align: center;">3</td>
                <td style="text-align: center;">3</td>
                <td style="text-align: center;">9</td>
                <td style="text-align: center;" class="can-edit"></td>
                <td style="text-align: center;" class="can-edit"></td>
            </tr>
            <tr>
                <td style="text-align: center;">4</td>
                <td style="text-align: center;">3</td>
                <td style="text-align: center;">12</td>
                <td style="text-align: center;" class="can-edit"></td>
                <td style="text-align: center;" class="can-edit"></td>
            </tr>
            <tr>
                <td style="text-align: center;">5</td>
                <td style="text-align: center;">3</td>
                <td style="text-align: center;">15</td>
                <td style="text-align: center;" class="can-edit"></td>
                <td style="text-align: center;" class="can-edit"></td>
            </tr>
            <tr>
                <td style="text-align: center;">6</td>
                <td style="text-align: center;">3</td>
                <td style="text-align: center;">18</td>
                <td style="text-align: center;" class="can-edit"></td>
                <td style="text-align: center;" class="can-edit"></td>
            </tr>
        </tbody>
</table>

---

# Graphical Analysis of Revenue

.panelset.sideways.right[
.panel[
.panel-name[Base Case Scenario]
<img src="revenue-1.svg" style="width: 100%;">
]
.panel[
.panel-name[Change in Market Conditions]
<img src="revenue-2.svg" style="width: 100%;">
]
.panel[
.panel-name[Change in Production Decision]
<img src="revenue-3.svg" style="width: 100%;">
]
]

---

# Calculated Problem

<div>
    <p>In the figure to the left P<sub>0</sub>=$1, P<sub>1</sub>=$1.80, Q<sub>0</sub>=50,000, and Q<sub>1</sub>=350,000. How much revenue has the firm gained due to the change in market conditions and its decision to increase production?</p>
</div>

<div style="position: relative; top: 180px">
    <input type="text" id="userAnswer1" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(580000, 'result1', 'userAnswer1')" class="submit-button">Check</button>
</div>
<div id="result1"></div>

]

---
background-image: url(hny25.png)
---

class: clear, middle, no-scribble
  
  .font200[
<strong>  Profit Maximization In <br>&nbsp;Competitive Markets</strong>
]
<hr>

---

# Profit Maximization Calculation Exercise

<table class="none">
        <thead>
            <tr>
                <th style="vertical-align: top">Q</th>
                <th style="vertical-align: top">TR</th>
                <th style="vertical-align: top">TC</th>
                <th style="vertical-align: top">&pi; <br>(TR-TC)</th>
                <th style="vertical-align: top">MR<br>(&Delta;TR/&Delta;Q)</th>
                <th style="vertical-align: top">MC<br>(&Delta;TC/&Delta;Q)</th>
                <th style="vertical-align: top">&pi;&prime;<br>(MR-MC)</th>
            </tr>
        </thead>
        <tbody>
            <tr> 
                <td style="border-top: 3px solid black; text-align: center;">0</td>
                <td style="border-top: 3px solid black; text-align: center;">0</td>
                <td style="border-top: 3px solid black; text-align: center;">2</td>
                <td style="border-top: 3px solid black; text-align: center;">-2</td>
                <td style="border-top: 3px solid black; text-align: center;">NA</td>
                <td style="border-top: 3px solid black; text-align: center;">NA</td>
                <td style="border-top: 3px solid black; text-align: center;">NA</td>
            </tr>
            <tr>
                <td style="text-align: center;">1</td>
                <td style="text-align: center;">2</td>
                <td style="text-align: center;">2.5</td>
                <td style="text-align: center;">-0.5</td>
                <td style="text-align: center;" class="can-edit"></td>
                <td style="text-align: center;" class="can-edit"></td>
                <td style="text-align: center;" class="can-edit"></td>
            </tr>
            <tr>
                <td style="text-align: center;">2</td>
                <td style="text-align: center;">4</td>
                <td style="text-align: center;">3.5</td>
                <td style="text-align: center;">0.5</td>
                <td style="text-align: center;" class="can-edit"></td>
                <td style="text-align: center;" class="can-edit"></td>
                <td style="text-align: center;" class="can-edit"></td>
            </tr>
            <tr>
                <td style="text-align: center;">3</td>
                <td style="text-align: center;">6</td>
                <td style="text-align: center;">5</td>
                <td style="text-align: center;">1</td>
                <td style="text-align: center;" class="can-edit"></td>
                <td style="text-align: center;" class="can-edit"></td>
                <td style="text-align: center;" class="can-edit"></td>
            </tr>
            <tr>
                <td style="text-align: center;">4</td>
                <td style="text-align: center;">8</td>
                <td style="text-align: center;">7</td>
                <td style="text-align: center;">1</td>
                <td style="text-align: center;" class="can-edit"></td>
                <td style="text-align: center;" class="can-edit"></td>
                <td style="text-align: center;" class="can-edit"></td>
            </tr>
            <tr>
                <td style="text-align: center;">5</td>
                <td style="text-align: center;">10</td>
                <td style="text-align: center;">9.5</td>
                <td style="text-align: center;">0.5</td>
                <td style="text-align: center;" class="can-edit"></td>
                <td style="text-align: center;" class="can-edit"></td>
                <td style="text-align: center;" class="can-edit"></td>
            </tr>
            <tr>
                <td style="text-align: center;">6</td>
                <td style="text-align: center;">12</td>
                <td style="text-align: center;">12.5</td>
                <td style="text-align: center;">-0.5</td>
                <td style="text-align: center;" class="can-edit"></td>
                <td style="text-align: center;" class="can-edit"></td>
                <td style="text-align: center;" class="can-edit"></td>
            </tr>
        </tbody>
    </table>

---

# Evaluation of the Profit Maximization Assumption

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# Evaluation of the Profit Maximization Assumption

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-balance-scale"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">The problem can made most realistic (and impossible to solve!) by assuming that the firm maximizes profit over many periods but without complete information for the probability distribution of the future states of the world (no clairvoyance!)</td>
  </tr>
</table>

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-balance-scale"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">Since the firms managers do not, in practice, have the necessary information about the future states of the world some economists argue that the profit maximization model is only of theoretical interest and, in reality, firms satisfice by trying to maximize sales while making sure that they are selling their products at a price higher than the cost of production or by aiming to achieve certain minimum return on the capital invested in production</td>
  </tr>
</table>

---

# Evaluation of the Profit Maximization Assumption

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-balance-scale"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">The usual response is that the model does not pretend to be descriptive (how the world works) but prescriptive (how firms should TRY to approach their production decisions if they want to make maximum profit) and that reality is simplified for pedagogical purposes</td>
  </tr>
</table>

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# Calculated Problem

<div>
    <p>Econometricians have estimated that Dynamic Quality Inc, a small independent publisher, whose books sell for $20 each, has the following cost functions:<br><br>TC = 0.5Q<sup>2</sup> + 10Q + 100<br><br>MC = Q + 10 <br><br>Based on this information, determine the fixed cost of Dynamic Quality Inc.</p>
</div>

<div style="position: relative; top: 30px">
    <input type="text" id="userAnswer2" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(100, 'result2', 'userAnswer2')" class="submit-button">Check</button>
</div>
<div id="result2"></div>

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# Calculated Problem

<div style="position: relative; top: 30px">
    <input type="text" id="userAnswer3" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(10, 'result3', 'userAnswer3')" class="submit-button">Check</button>
</div>
<div id="result3"></div>

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# Calculated Problem

<div>
    <p>Econometricians have estimated that Dynamic Quality Inc, a small independent publisher, whose books sell for $20 per piece, has the following cost functions:<br><br>TC = 0.5Q<sup>2</sup> + 10Q + 100<br><br>MC = Q + 10 <br><br>Based on this information, determine the maximum profit Dynamic Quality Inc can generate.</p>
</div>

<div style="position: relative; top: 30px">
    <input type="text" id="userAnswer4" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(-50, 'result4', 'userAnswer4')" class="submit-button">Check</button>
</div>
<div id="result4"></div>

---

# Calculated Problem

<div>
    <p>Econometricians have estimated that Dynamic Quality Inc, a small independent publisher, whose books sell for $20 per piece, has the following cost functions:<br><br>TC = 0.5Q<sup>2</sup> + 10Q + 100<br><br>MC = Q + 10 <br><br>Based on this information, determine the profit Dynamic Quality Inc will generate in the short run if it shuts down.</p>
</div>

<div style="position: relative; top: 30px">
    <input type="text" id="userAnswer5" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(-100, 'result5', 'userAnswer5')" class="submit-button">Check</button>
</div>
<div id="result5"></div>

---

# Calculated Problem

<div>
    <p>Econometricians have estimated that Dynamic Quality Inc, a small independent publisher, whose books sell for $20 per piece, has the following cost functions:<br><br>TC = 0.5Q<sup>2</sup> + 10Q + 100<br><br>MC = Q + 10 <br><br>Based on this information, determine the AVC of Dynamic Quality Inc at the loss-minimizing quantity.</p>
</div>

<div style="position: relative; top: 30px">
    <input type="text" id="userAnswer6" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(15, 'result6', 'userAnswer6')" class="submit-button">Check</button>
</div>
<div id="result6"></div>

---
background-image: url(hny25.png)
---

class: clear, middle, no-scribble
  
  .font200[
<strong>  Graphical Model of Profit <br>&nbsp;Maximization</strong>
]
<hr>

---

# Profit Maximization Diagram

.panelset.sideways.right[
.panel[
.panel-name[D]
<img src="12h_files/figure-html/d-1.svg" style="display: block; margin: auto;" />
]

.panel[
.panel-name[ATC]
<img src="12h_files/figure-html/atc-1.svg" style="display: block; margin: auto;" />
]

.panel[
.panel-name[MC]
<img src="12h_files/figure-html/mcc-1.svg" style="display: block; margin: auto;" />
]
]

---
background-image: url(hny25.png)
---

class: clear, middle, no-scribble
  
  .font200[
<strong>  Profit/Loss Analysis</strong>
]
<hr>

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background-image: url(hny25.png)
---

# Analytical Rresentation of Profit

<table class="none">
<tr><td style="text-align: right">$ \Huge \pi $</td> <td style="text-align: center">=</td> <td style="text-align: left">$ \Large TR - TC $</td></tr>
<tr><td style="text-align: right"></td> <td style="text-align: center">=</td> <td style="text-align: left">$ \Large (\frac{TR}{Q}-\frac{TC}{Q})\times Q $</td></tr>
<tr><td style="text-align: right"></td> <td style="text-align: center">=</td> <td style="text-align: left">$ \Large (AR - ATC)\times Q $</td></tr>
<tr><td style="text-align: right"></td> <td style="text-align: center">=</td> <td style="text-align: left">$ \Large (P - ATC)\times Q $</td></tr>
<tr><td style="text-align: right"></td> <td style="text-align: center">=</td> <td style="text-align: left">.font150[Profit per unit &times; Output]</td></tr>
</table>

---

# Calculated Problem

<div>
    <p>Use the figure to the left to determine the firm's revenue per unit when 400 units are produced</p>
</div>

<div style="position: relative; top: 330px">
    <input type="text" id="userAnswer10" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(36, 'result10', 'userAnswer10')" class="submit-button">Check</button>
</div>
<div id="result10"></div>
  
]

---

# Calculated Problem

<div>
    <p>Use the figure to the left to determine the firm's fixed cost per unit when 400 units are produced</p>
</div>

<div style="position: relative; top: 330px">
    <input type="text" id="userAnswer7" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(6, 'result7', 'userAnswer7')" class="submit-button">Check</button>
</div>
<div id="result7"></div>
  
]

---

# Calculated Problem

<div>
    <p>Use the figure to the left to determine the firm's variable cost per unit when 400 units are produced</p>
</div>

<div style="position: relative; top: 330px">
    <input type="text" id="userAnswer8" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(10, 'result8', 'userAnswer8')" class="submit-button">Check</button>
</div>
<div id="result8"></div>
  
]

---

# Calculated Problem

<div>
    <p>Use the figure to the left to determine the firm's cost per unit when 400 units are produced</p>
</div>

<div style="position: relative; top: 330px">
    <input type="text" id="userAnswer9" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(16, 'result9', 'userAnswer9')" class="submit-button">Check</button>
</div>
<div id="result9"></div>
  
]

---

# Calculated Problem

<div>
    <p>Use the figure to the left to determine the firm's profit per unit when 400 units are produced</p>
</div>

<div style="position: relative; top: 330px">
    <input type="text" id="userAnswer11" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(20, 'result11', 'userAnswer11')" class="submit-button">Check</button>
</div>
<div id="result11"></div>
  
]

---

# Calculated Problem

<div>
    <p>Use the figure to the left to determine the firm's total profit when 400 units are produced</p>
</div>

<div style="position: relative; top: 330px">
    <input type="text" id="userAnswer12" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(8000, 'result12', 'userAnswer12')" class="submit-button">Check</button>
</div>
<div id="result12"></div>
  
]

---

# Calculated Problem

<div>
    <p>Use the figure to the left to determine the firm's total revenue when 400 units are produced</p>
</div>

<div style="position: relative; top: 330px">
    <input type="text" id="userAnswer16" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(14400, 'result16', 'userAnswer16')" class="submit-button">Check</button>
</div>
<div id="result16"></div>
  
]

---

# Calculated Problem

<div>
    <p>Use the figure to the left to determine the firm's fixed cost when 400 units are produced</p>
</div>

<div style="position: relative; top: 330px">
    <input type="text" id="userAnswer13" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(2400, 'result13', 'userAnswer13')" class="submit-button">Check</button>
</div>
<div id="result13"></div>
  
]

---

# Calculated Problem

<div>
    <p>Use the figure to the left to determine the firm's variable cost when 400 units are produced</p>
</div>

<div style="position: relative; top: 330px">
    <input type="text" id="userAnswer14" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(4000, 'result14', 'userAnswer14')" class="submit-button">Check</button>
</div>
<div id="result14"></div>
  
]

---

# Calculated Problem

<div>
    <p>Use the figure to the left to determine the firm's total cost when 400 units are produced</p>
</div>

<div style="position: relative; top: 330px">
    <input type="text" id="userAnswer15" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(6400, 'result15', 'userAnswer15')" class="submit-button">Check</button>
</div>
<div id="result15"></div>
  
]

---

# Graphical Presentation of Profit/Loss

.panelset.sideways.right[
.panel[
.panel-name[Profit]
<img src="profit.svg" style="width: 100%;">
]
.panel[
.panel-name[Loss]
<img src="loss.svg" style="width: 100%;">
]
]

---
background-image: url(hny25.png)
---

# The Shut-Down Decision

.panelset.sideways.right[
.panel[
.panel-name[Bad Market]
<img src="loss-no-shutdown-1.svg" style="width: 100%;">
]
.panel[
.panel-name[MC = MR]
<img src="loss-no-shutdown-2.svg" style="width: 100%;">
]
.panel[
.panel-name[P > AVC]
<img src="loss-no-shutdown-3.svg" style="width: 100%;">
]
.panel[
.panel-name[TR > VC]
<img src="loss-no-shutdown-4.svg" style="width: 100%;">
]
.panel[
.panel-name[Loss = FC]
<img src="loss-no-shutdown-5.svg" style="width: 100%;">
]
.panel[
.panel-name[Loss < FC]
<img src="loss-no-shutdown-6.svg" style="width: 100%;">
]
]

---

class: clear, middle, no-scribble
  
  .font200[
<strong>  Profit Maximization And The<br>&nbsp;Supply Curve</strong>
]
<hr>

---

# Supply Curve Derivation From Profit Maximization Assumption (MR=MC)

---

# Calculated Problem

<div>
    <p>In the figure to the left, panel (a) depicts the linear marginal cost of a firm in a competitive market and panel (b) depicts the linear market supply curve for a market with a fixed number of identical firms. When 1,000 identical firms participate in this market, at what price will 175,000 units be supplied to the market?</p>
</div>

<div style="position: relative; top: 30px">
    <input type="text" id="userAnswer17" placeholder="Answer" class="input-field"><button onclick="checkAnswerO(1.75, 'result17', 'userAnswer17')" class="submit-button">Check</button>
</div>
<div id="result17"></div>
  
]

---

class: clear, middle, no-scribble
  
  .font200[
<strong>  Profit Dynamics in Competitive<br>&nbsp;Markets</strong>
]
<hr>

---

# Long-Run Equilibrium

---

# Demand Increase (Short-Run Effect)

---

# Demand Increase (Long-Run Effect)

---

class: clear, middle, no-scribble
  
  .font200[
<strong>  Conclusions</strong>
]
<hr>

---

# Evaluation Of The Perfect Competition Model

---

# Key Takeaways

By now YOU should have learned that

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-chevron-circle-right"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">a business that operates in a competitive market is very unlikely to earn economic profit in the long run</td>
  </tr>
</table>

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-chevron-circle-right"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">this is due to the lack of barriers to entry which enable new firms to enter the market if there is abnormal profit to be made in the short run</td>
  </tr>
</table>

<table class="none">
  <tr style="background-color: transparent;">
    <td style="text-align: right; vertical-align: top; width: 50px;"><i class="fa fa-chevron-circle-right"></td>
    <td style="width: 20px"> </td>
    <td style="text-align: left; vertical-align: top; width: auto;">another factor that erodes firm profitability is the large number of firms that sell identical products, resulting in perfectly elastic demand for the product of an individual producer</td>
  </tr>
</table>

In the coming lectures we will relax the assumptions of free entry and lack of differentiation to see how that would affect the profitability of firms in the short run and in the long run!

---

# Questions?

<br>

</body>
</html>

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# Thank You!

<br>