1. Session10 Firms in Competitive Markets Lectured by Prof. Dr. Ferdinand D. Saragih, MA

11. Table 1 Total, Average, and Marginal Revenue for a Competitive Firm Copyright©2004 South-Western

13. Table 2 Profit Maximization: A Numerical Example Copyright©2004 South-Western

14. Figure 1 Profit Maximization for a Competitive Firm Copyright © 2004 South-Western Quantity 0 Costs and Revenue MC ATC AVC MC 1 Q 1 MC 2 Q 2 The firm maximizes profit by producing the quantity at which marginal cost equals marginal revenue. Q MAX P = MR 1 = MR 2 P = AR = MR

17. Figure 2 Marginal Cost as the Competitive Firm’s Supply Curve Copyright © 2004 South-Western Quantity 0 Price MC ATC AVC P 1 Q 1 P 2 Q 2 This section of the firm’s MC curve is also the firm’s supply curve.

21. Figure 3 The Competitive Firm’s Short Run Supply Curve Copyright © 2004 South-Western Quantity 0 Costs MC ATC AVC Firm shuts down if P < AVC Firm ’ s short-run supply curve If P > AVC, firm will continue to produce in the short run. If P > ATC , the firm will continue to produce at a profit.

25. Figure 4 The Competitive Firm’s Long-Run Supply Curve Copyright © 2004 South-Western Quantity 0 Costs MC = long-run S Firm exits if P < ATC ATC Firm ’ s long-run supply curve Firm enters if P > ATC

27. Figure 4 The Competitive Firm’s Long-Run Supply Curve Copyright © 2004 South-Western Quantity 0 Costs MC ATC Firm ’ s long-run supply curve

29. Figure 5 Profit as the Area between Price and Average Total Cost Copyright © 2004 South-Western (a) A Firm with Profits Quantity 0 Price (profit-maximizing quantity) P = AR = MR ATC MC P ATC Q Profit

30. Figure 5 Profit as the Area between Price and Average Total Cost Copyright © 2004 South-Western (b) A Firm with Losses Quantity 0 Price (loss-minimizing quantity) ATC MC P = AR = MR P ATC Q Loss

33. Figure 6 Market Supply with a Fixed Number of Firms Copyright © 2004 South-Western (a) Individual Firm Supply Quantity (firm) 0 Price (b) Market Supply Quantity (market) 0 Price MC 1.00 100 $2.00 200 Supply 1.00 100,000 $2.00 200,000

35. Figure 7 Market Supply with Entry and Exit Copyright © 2004 South-Western (a) Firm ’ s Zero-Profit Condition Quantity (firm) 0 Price (b) Market Supply Quantity (market) Price 0 P = minimum ATC Supply MC ATC

39. Figure 8 An Increase in Demand in the Short Run and Long Run Firm (a) Initial Condition Quantity (firm) 0 Price Market Quantity (market) Price 0 D Demand, 1 S Short-run supply, 1 P 1 ATC Long-run supply P 1 1 Q A MC

40. Figure 8 An Increase in Demand in the Short Run and Long Run Copyright © 2004 South-Western Market Firm (b) Short-Run Response Quantity (firm) 0 Price Quantity (market) Long-run supply Price 0 P 1 MC ATC Profit P 1 D 1 D 2 S 1 P 2 Q 1 A Q 2 P 2 B

41. Figure 8 An Increase in Demand in the Short Run and Long Run Copyright © 2004 South-Western P 1 Firm (c) Long-Run Response Quantity (firm) 0 Price MC ATC Market Quantity (market) Price 0 P 1 P 2 Q 1 Q 2 Long-run supply B D 1 S 1 A D 2 S 2 Q 3 C