Ch7 Competition

7.1 The Competitive Firm

marginal revenue = price a firm's output: where price = MC (marginal cost)

U-shaped MC curve

if lost in [0,Q₁] < profit in [Q₁,Q₂] → produce Q₂
else → shut down

short run: can shutdown
long run: can exit

shut down or not ?

operate profit: TR(total revenue) - TC(total cost)
shut down profit: -FC (fixed cost)
TC = FC + VC (variable cost)
operate if operate profit > shut down profit i.e. TR > VC
(bc fixed cost is there whether shut down or not, so only variable cost matters)
TR = P×Q > VC
→ ==P > AVC== i.e. price > average variable cost then a firm operate

bold part = supply curve
(only produce when P=MC>AVC) produce nothing at price < P₀

MC intersect AVC & AC at min point

原因：marginal < average 時，會讓 average 減少；> average 時，會讓 average 增加，又 fixed cost 不變

elasticity of supply

elasticity = \(\(\frac{△Q/Q}{△P/P}\)\) (the flatter the higher)

7.2 The Competitive Industry in the Short Run

industry supply curve

changes in variable costs

a firm:

• marginal cost rises → supply curve shifts upward/leftward
• in industry, price = P₀ → P₂, so d→d' in a firm, q₂ not necessarily < q₀

an industry:

• the sum of firms' supply curves → shifts upward/leftward
• Q₂ < Q₀

a change in demand

7.3 The Competitive Firm in the Long Run

min AC point = equilibrium quantity q&p (horizontal demand i.e. price is the tangent of min AC)

• if p > AC, the firm is earning positive economic profits, so more firms will come in, making p decreases
• if p < AC, the firm is earning negative economic profits, so it will quit

i.e. in long run, price = min AC

P₀→P₁ short run: S
long run: LRS, S' p.183

7.4 The Competitive Industry in the Long Run

change in demand

constant-cost

long run: price don't change

short run: price goes up

change in cost

constant-cost

changes in variable cost

如果每單位 output 上升相同的 marginal cost，AC 就會垂直上升，讓均衡 output 不變
但若是 variable cost 按比例上升，output 愈大 marginal cost 上升愈多

suppose a lecense fee is charged

短期才會有好處 長期而言都是 0 profit

increasing-cost

same as constant-cost except the shape of LRS

applications

1. apartment rent for $400
2. new law: $200 max
3. change to $20p
4. remove law
5. change to $500
6. change back to $400 ultimately

7.5 XXXX-Cost Industries

Constant-Cost Industries

break-even price (price that makes you profit = 0 ) is constant as q ↑

Increasing-Cost Industries

break-even price ↑ as q ↑

可能原因

• break-even price 較低者較早進入市場，較高者較晚進入
• factor price ↑ as q ↑ e.g. lands

Decreasing-Cost industries

costs ↓ as q ↑ → break-even price ↓ as q ↑ e.g. 3C industry

Homework

• a. short(no change in long)
• b. long
• c. short
• d. short