ECO 105 Goel Week 7 Notes: 9/28-10/2
ECO 105 Goel Week 7 Notes: 9/28-10/2 ECO 105
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This 5 page Class Notes was uploaded by Daniel Hemenway on Saturday October 3, 2015. The Class Notes belongs to ECO 105 at Illinois State University taught by Rajeev Goel in Fall 2015. Since its upload, it has received 27 views. For similar materials see Principles Economics in Economcs at Illinois State University.
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Date Created: 10/03/15
ECO 105 Goel 928102 Slight Importance Moderate Importance High Importance Chapters 9 13 0 Perfect Competition l l Perfect Monopolistic Oligopoly Monopoly Competition Competition Features 0 Large number of buyers and sellers 0 Perfect information about Price and Quantity 0 Homogeneous product 0 No barrier to entry and exit of firms 0 No buyer or seller is large enough to influence the price 0 Price and Marginal Revenue MR Total Revenue TR Sales P x Q Marginal Revenue MR Extra revenue from selling one or more unit of a good or service Change in TR Change in Q Perfectly competitive m are PRICE TAKERS Firms take price as given gt Horizontal demand curve gt P MR TR1 50 TR2 55 P DMR P 5 D MR ATRAQ 51 P O Q 0 10 11 Q A Perfectly Competitive INDUSTRY has a negatively sloped demand SD ECO 105 Goel 928102 All NonCompetitive Firms are PRICE SEARCHERS gt Negative Sloping Demand Curve gt P gt MR NonCompetitive Firms P Searchers S P gt MR D O MR Q 0 10 if Q MR 0 Profit Maximization Profit Maximization Rule MC MR 0 Applies to all firms Shut Down Rule 0 P gt AVC or TR gt VC Do not shut down 0 P lt AVC or TR lt VC Shut down Applies in Short Run SR only Firm Shut Down Firm Losses MC ATC AVC ATC AVC p D M R M R ECO 105 Goel 928102 MC S ATC AVC D MR Q 0 Q Perfect Competition Supply SR Supply Curve A PC Lm s Short Run Supply Curve is the portion of the MC Curve above the minimum AVC The Industry Supply curve is the horizontal summation of individual Firms Supply curves just like an industry Demand Curve The Profit Maximizing Rule MC MR can be applied to PC Firms as P MC Perfect Competition Profit Maximization In the Short Run a perfectly competitive firm might shut down make profits or make losses In the Long Run a perfectly competitive makes normal Profits ie Break Even Long Run Profit Maximization Equilibrium under Perfect Competition FIRM INDUSTRY MC ATC DMR MCMRPATC O Q 0 ECO 105 Goel 928102 Long Run Perfect Competition Characteristics of Long Run Equilibrium Profit Maximization under Perfect Competition 0 Firms make normal Profit Due to freedom of entry and exit of firms 0 Firms produce at lowest points on ATC economic efficiency no wastage Constant Cost Industry Industry supply curve is horizontal Increasing Cost Industry Industry supply curve is upward slowing Producer Surplus Measure of seller s wellbeing Difference between what a seller receives for a good and the minimum the seller is willing to receive Graphically the area above the supply curve and below the price Together consumer surplus and producer surplus provide a measure of soual welfare onsumer Surplus S PS5X10X525 p 10 5 Producer Surplus O D Q Chapter 14 Monopoly Features One seller many buyers No close substitutes for the product Price Searcher Maker P gt MR Barriers to entry of rivals For a monopoly the firm and industry are one and the same ECO 105 Goel 928102 Barriers to Entry Economies of Scale Patents Exclusive ownership of raw materials Public Franchises Licensing Joe Bain 1960 s Exit Barriers Monopoly Profit Maximization EQ S W S ATC AVC ATC I MC P p 39 AVC Profitsquot Profits 39gt ATC ATC D MR MC 0 R 0 Q M R SR LR Marginal Revenue and Price Elasticity of Demand When MR 0 ED 1 Unit Elastic When MR gt 1 ED gt 1 Elastic Demand When MR lt 0 ED lt 1 Inelastic Demand Note that unlike P and Q MR can be negative
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