1. Chapter Twenty-Two Firm Supply

11. Pure Competition Y $/output unit Market Supply Market Demand p e

12. Pure Competition y $/output unit Market Supply p e p’ At a price of p’, zero is demanded from the firm. Market Demand

13. Pure Competition y $/output unit Market Supply p e p’ p” At a price of p” the firm faces the entire market demand. At a price of p’, zero is demanded from the firm. Market Demand

15. Pure Competition y $/output unit Market Supply p e p’ p” At a price of p” the firm faces the entire market demand. At a price of p’, zero is demanded from the firm. Market Demand

16. Pure Competition Y $/output unit p e p’ p” Market Demand

18. Smallness $/output unit y Firm’s MC The individual firm’s technology causes it always to supply only a small part of the total quantity demanded at the market price. Firm’s demand curve p e

21. The Firm’s Short-Run Supply Decision What can the solution y s * look like?

22. The Firm’s Short-Run Supply Decision What can the solution y s * look like? (a) y s * > 0:  (y) y y s *

23. The Firm’s Short-Run Supply Decision What can the solution y* look like? (b) y s * = 0:  (y) y y s * = 0

24. The Firm’s Short-Run Supply Decision For the interior case of y s * > 0, the first- order maximum profit condition is That is, So at a profit maximum with y s * > 0, the market price p equals the marginal cost of production at y = y s *.

25. The Firm’s Short-Run Supply Decision For the interior case of y s * > 0, the second- order maximum profit condition is That is, So at a profit maximum with y s * > 0, the firm’s MC curve must be upward-sloping.

26. The Firm’s Short-Run Supply Decision $/output unit y p e y s * y’ MC s (y)

27. The Firm’s Short-Run Supply Decision $/output unit y p e y s * y’ At y = y s *, p = MC and MC slopes upwards. y = y s * is profit-maximizing. MC s (y)

28. The Firm’s Short-Run Supply Decision $/output unit y p e y s * y’ At y = y s *, p = MC and MC slopes upwards. y = y s * is profit-maximizing. At y = y’, p = MC and MC slopes downwards. y = y’ is profit-minimizing. MC s (y)

29. The Firm’s Short-Run Supply Decision $/output unit y p e y’ At y = y s *, p = MC and MC slopes upwards. y = y s * is profit-maximizing. So a profit-max. supply level can lie only on the upwards sloping part of the firm’s MC curve. MC s (y) y s *

34. The Firm’s Short-Run Supply Decision AVC s (y) AC s (y) MC s (y) $/output unit y

35. The Firm’s Short-Run Supply Decision AVC s (y) AC s (y) MC s (y) $/output unit y

36. The Firm’s Short-Run Supply Decision AVC s (y) AC s (y) MC s (y) $/output unit y p  AVC s (y)

37. The Firm’s Short-Run Supply Decision AVC s (y) AC s (y) MC s (y) p  AVC s (y) y s * > 0. $/output unit y

38. The Firm’s Short-Run Supply Decision AVC s (y) AC s (y) MC s (y) p  AVC s (y) y s * = 0. $/output unit y p  AVC s (y) y s * > 0.

39. The Firm’s Short-Run Supply Decision AVC s (y) AC s (y) MC s (y) p  AVC s (y) y s * = 0. The firm’s short-run supply curve $/output unit y p  AVC s (y) y s * > 0.

40. The Firm’s Short-Run Supply Decision AVC s (y) AC s (y) MC s (y) The firm’s short-run supply curve Shutdown point $/output unit y

46. The Firm’s Long-Run Supply Decision MC(y) AC(y) y $/output unit

47. The Firm’s Long-Run Supply Decision MC(y) AC(y) y $/output unit p > AC(y)

48. The Firm’s Long-Run Supply Decision MC(y) AC(y) y $/output unit p > AC(y)

49. The Firm’s Long-Run Supply Decision MC(y) AC(y) y $/output unit The firm’s long-run supply curve

51. The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit AC s (y) MC s (y)

52. The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit AC s (y) MC s (y) p’ y s * y* y s * is profit-maximizing in this short-run.

53. The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit AC s (y) MC s (y) p’ y s * y* y s * is profit-maximizing in this short-run.  s

54. The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit AC s (y) MC s (y) p’ y s * y* The firm can increase profit by increasing x 2 and producing y* output units.  s 

55. The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit AC s (y) MC s (y) p” y s * y s * is loss-minimizing in this short-run.

56. The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit AC s (y) MC s (y) p” y s * y s * is loss-minimizing in this short-run. Loss

57. The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit AC s (y) MC s (y) p” y s * This loss can be eliminated in the long- run by the firm exiting the industry. Loss

58. The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit

59. The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit p’ y s * y s * is profit-maximizing in this short-run.

60. The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit p’ y s * y s * is profit-maximizing in this short-run.  s

61. The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit p’ y s * y s * is profit-maximizing in this short-run. y* is profit-maximizing in the long-run. y*

62. The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit p’ y s * y s * is profit-maximizing in this short-run. y* is profit-maximizing in the long-run. y* 

63. The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit p’ y s * y*  s  The firm can increase profit by reducing x 2 and producing y* units of output.

64. The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit

65. The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit

66. The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit

67. The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit Short-run supply curves Long-run supply curve

69. Producer’s Surplus Revisited y $/output unit AVC s (y) AC s (y) MC s (y)

70. Producer’s Surplus Revisited y $/output unit AVC s (y) AC s (y) MC s (y)

71. Producer’s Surplus Revisited y $/output unit AVC s (y) AC s (y) MC s (y) p y*(p)

72. Producer’s Surplus Revisited y $/output unit AVC s (y) AC s (y) MC s (y) p PS y*(p)

73. Producer’s Surplus Revisited So the firm’s producer’s surplus is That is, PS = Revenue - Variable Cost.

74. Producer’s Surplus Revisited y $/output unit AVC s (y) AC s (y) MC s (y) p PS y*(p)

75. Producer’s Surplus Revisited y $/output unit AVC s (y) AC s (y) MC s (y) p y*(p)

76. Producer’s Surplus Revisited y $/output unit AVC s (y) AC s (y) MC s (y) p y*(p) Revenue = py*(p)

77. Producer’s Surplus Revisited y $/output unit AVC s (y) AC s (y) MC s (y) p y*(p) Revenue = py*(p) c v (y*(p))

78. Producer’s Surplus Revisited y $/output unit AVC s (y) AC s (y) MC s (y) p PS y*(p)