Firms in competitive markets - Historique des versions

2001:569:71B3:2B00:1423:6D16:31A6:5629 le 13 avril 2020 à 05:10

2020-04-13T05:10:01Z

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	== Why do competitive firms stay in business if they make zero profit? ==		== Why do competitive firms stay in business if they make zero profit? ==

	To answer this question we must keep in mind that profit equals total revenue minus total cost, and that total cost includes all the opportunity costs of the firm. In particular, total cost includes the opportunity cost of the ~~rime an~~ money that firm owners devote to the business.		To answer this question we must keep in mind that profit equals total revenue minus total cost, and that total cost includes all the opportunity costs of the firm. In particular, total cost includes the opportunity cost of the time and money that firm owners devote to the business.

	== A shift in demand in the short run and long run ==		== A shift in demand in the short run and long run ==

	Because firms can enter an exit a market in the long run but not in the short run, the response of a market to a change in demand depends on the ~~rime~~ horizon.		Because firms can enter an exit a market in the long run but not in the short run, the response of a market to a change in demand depends on the time horizon.

	Suppose the market for a good begins in log-run equilibrium. Firms are earning zero profit, so price equals the minimum of average total cost. Now suppose scientists discover that the good has miraculous health benefits. As a result the demand curve for the good shifts outward, the short run equilibrium moves, the quantity rises and the price rises. All of the existing firms respond by raising the amount produced. Because each firm’s supply curve reflects its marginal cost curve, how much they each increase production is determined by the marginal cost curve. In the new short- run equilibrium, the price of the good exceeds average total cost, so the firms are making positive profit. Over time the profit in this market encourages new firms to enter. As the number of firms grows, the short-run supply curve shifts to the right and this shift causes the price of milk to fall. The price is driven back down to the minimum of average total cost, profits are zero and firms stop entering. Thus the market reaches a new long-run equilibrium. The price has returned, but the quantity produced has risen.		Suppose the market for a good begins in log-run equilibrium. Firms are earning zero profit, so price equals the minimum of average total cost. Now suppose scientists discover that the good has miraculous health benefits. As a result the demand curve for the good shifts outward, the short run equilibrium moves, the quantity rises and the price rises. All of the existing firms respond by raising the amount produced. Because each firm’s supply curve reflects its marginal cost curve, how much they each increase production is determined by the marginal cost curve. In the new short- run equilibrium, the price of the good exceeds average total cost, so the firms are making positive profit. Over time the profit in this market encourages new firms to enter. As the number of firms grows, the short-run supply curve shifts to the right and this shift causes the price of milk to fall. The price is driven back down to the minimum of average total cost, profits are zero and firms stop entering. Thus the market reaches a new long-run equilibrium. The price has returned, but the quantity produced has risen.

Arthur le 8 mai 2018 à 05:31

2018-05-08T05:31:48Z

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			{{Infobox Lecture
			\| image =
			\| image_caption =
			\| faculté =
			\| département =
			\| professeurs =
			\| assistants =
			\| enregistrement =
			\| cours = [[Introduction to microeconomics]]
			\| lectures =
			*[[Principles of economics]]
			*[[Supply and demand: How markets work]]
			*[[Elasticity and its application]]
			*[[Supply and demand: Markets and welfare]]
			*[[The economics of the public sector]]
			*[[The costs of production]]
			*[[Firms in competitive markets]]
			*[[Monopoly]]
			*[[Oligopoly]]
			*[[Monopolisitc competition]]
			}}

	= What is a competitive Market? The meaning of competition =		= What is a competitive Market? The meaning of competition =

Arthur le 8 mai 2018 à 05:24

2018-05-08T05:24:08Z

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	The profit equals total revenue (<math>TR</math>) minus total cost (<math>TC</math>):		The profit equals total revenue (<math>TR</math>) minus total cost (<math>TC</math>):

	:<math>Profit = TR – TC</math>		:<math>Profit = TR - TC</math>
	:<math>Profit = (\frac{TR}{Q} – \frac{TC}{Q}) \times Q</math>		:<math>Profit = (\frac{TR}{Q} - \frac{TC}{Q}) \times Q</math>
	:<math>Q = Quantity</math>		:<math>Q = Quantity</math>
	:<math>Profit = (P - ATC) \times Q</math>		:<math>Profit = (P - ATC) \times Q</math>

Arthur le 8 mai 2018 à 05:23

2018-05-08T05:23:42Z

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	Notice that if firms have different costs, some firms earns profit even in the long run. In this case, the price in the market reflects the average total cost of the marginal firm – that firm that would exit the market if the price were any lower. This firm earns zero profit, but firms with lower costs earn positive profit.		Notice that if firms have different costs, some firms earns profit even in the long run. In this case, the price in the market reflects the average total cost of the marginal firm – that firm that would exit the market if the price were any lower. This firm earns zero profit, but firms with lower costs earn positive profit.

			= References =
			<references/>

Arthur : /* The long run: market supply with entry and exit */

2016-02-18T16:17:45Z

The long run: market supply with entry and exit

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	Now consider what happens if the firms are able to enter or exit the market. Let’s suppose that everyone has access to the same technology for producing the good and access to the same markets to buy the inputs into production. Therefore, all firms and all potential firms have the same cost curves.		Now consider what happens if the firms are able to enter or exit the market. Let’s suppose that everyone has access to the same technology for producing the good and access to the same markets to buy the inputs into production. Therefore, all firms and all potential firms have the same cost curves.

	If firms already in the market are profitable, then new firms will have an incentive to enter the market. This entry will expand the number of firms, increase the quantity of the good supplied, and drive down prices and profits. Conversely, if firms in the market are making losses, then some existing firms will exit the market. Their exit will reduce the number of firms, decrease the quantity of the good supplied and drive up prices and profits. At the end of this process firms that remain in the market must be making zero economic profit (Profit = (P-ATC) x Q) An operating firm has zero profit if and only if the price of the good equals the average total cost of producing that good.		If firms already in the market are profitable, then new firms will have an incentive to enter the market. This entry will expand the number of firms, increase the quantity of the good supplied, and drive down prices and profits. Conversely, if firms in the market are making losses, then some existing firms will exit the market. Their exit will reduce the number of firms, decrease the quantity of the good supplied and drive up prices and profits. At the end of this process firms that remain in the market must be making zero economic profit (<math>Profit = (P - ATC) \times Q</math>) An operating firm has zero profit if and only if the price of the good equals the average total cost of producing that good.

	The long-run equilibrium of a competitive market with free entry an exit must have firms operating at their efficient scale. (price = marginal cost in competitive markets M free entry and exit forces price to equal average total cost; price equal marginal and average total cost; marginal and average total cost equals each other = efficient scale).		The long-run equilibrium of a competitive market with free entry an exit must have firms operating at their efficient scale. (price = marginal cost in competitive markets M free entry and exit forces price to equal average total cost; price equal marginal and average total cost; marginal and average total cost equals each other = efficient scale).

Arthur : /* The revenue of a competitive firm */

2016-02-18T16:17:16Z

The revenue of a competitive firm

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	A firm in a competitive market tries to maximize profit, which equals total revenue minus total cost.		A firm in a competitive market tries to maximize profit, which equals total revenue minus total cost.

	The average revenue is total revenue divided by the quantity sold (amount of output). Average revenue tells us how much revenue a firm for the typical unit sold. (total revenue is <math>P x Q</math>, price times quantity).		The average revenue is total revenue divided by the quantity sold (amount of output). Average revenue tells us how much revenue a firm for the typical unit sold. (total revenue is <math>P \times Q</math>, price times quantity).

	The marginal revenue is the change in total revenue from the sale of each additional unit of output.		The marginal revenue is the change in total revenue from the sale of each additional unit of output.
	Total revenue is <math>P x Q</math> and <math>P</math> is fixed for a competitive firm. Therefore, when <math>Q</math> rises by 1 unit, total revenue rises by <math>P</math> euros. For competitive firms, marginal revenue equals the price <math>f</math> the good (attention: ONLY FOR COMPETITIVE MARKETS).		Total revenue is <math>P \times Q</math> and <math>P</math> is fixed for a competitive firm. Therefore, when <math>Q</math> rises by 1 unit, total revenue rises by <math>P</math> euros. For competitive firms, marginal revenue equals the price <math>f</math> the good (attention: ONLY FOR COMPETITIVE MARKETS).

	== Profit maximization and the competitive firm’s supply curve ==		== Profit maximization and the competitive firm’s supply curve ==

Arthur : /* The revenue of a competitive firm */

2016-02-18T16:17:01Z

The revenue of a competitive firm

← Version précédente		Version du 18 février 2016 à 18:17
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	A firm in a competitive market tries to maximize profit, which equals total revenue minus total cost.		A firm in a competitive market tries to maximize profit, which equals total revenue minus total cost.

	The average revenue is total revenue divided by the quantity sold (amount of output). Average revenue tells us how much revenue a firm for the typical unit sold. (total revenue is P x Q , price times quantity).		The average revenue is total revenue divided by the quantity sold (amount of output). Average revenue tells us how much revenue a firm for the typical unit sold. (total revenue is <math>P x Q</math>, price times quantity).

	The marginal revenue is the change in total revenue from the sale of each additional unit of output.		The marginal revenue is the change in total revenue from the sale of each additional unit of output.
	Total revenue is P x Q and P is fixed for a competitive firm. Therefore, when Q rises by 1 unit, total revenue rises by P euros. For competitive firms, marginal revenue equals the price f the good (attention: ONLY FOR COMPETITIVE MARKETS).		Total revenue is <math>P x Q</math> and <math>P</math> is fixed for a competitive firm. Therefore, when <math>Q</math> rises by 1 unit, total revenue rises by <math>P</math> euros. For competitive firms, marginal revenue equals the price <math>f</math> the good (attention: ONLY FOR COMPETITIVE MARKETS).

	== Profit maximization and the competitive firm’s supply curve ==		== Profit maximization and the competitive firm’s supply curve ==

Arthur : /* The marginal cost curve and the firm’s supply decision */

2016-02-18T16:16:05Z

The marginal cost curve and the firm’s supply decision

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	== The marginal cost curve and the firm’s supply decision ==		== The marginal cost curve and the firm’s supply decision ==

	In general we use the rule that at the profit-maximizing level of output, marginal revenue and marginal cost are exactly equal. Because a competitive firm is a price taker, its marginal revenue equals the market price. For any given price, the competitive firm’s profit-maximizing quantity of output is found by looking at the intersection of the price with the marginal cost curve. (Schnittpunkt Preis und MC ergibt profit maximizing quantity. Da Preis gleich ~~bleibtPunkt~~ auf MC-Kurve die dem Preis entspricht). When the price rises, the firm finds that marginal revenue is now higher than marginal cost that the previous level of output, so that the firm increases production.		In general we use the rule that at the profit-maximizing level of output, marginal revenue and marginal cost are exactly equal. Because a competitive firm is a price taker, its marginal revenue equals the market price. For any given price, the competitive firm’s profit-maximizing quantity of output is found by looking at the intersection of the price with the marginal cost curve. (Schnittpunkt Preis und MC ergibt profit maximizing quantity. Da Preis gleich bleibt Punkt auf MC-Kurve die dem Preis entspricht). When the price rises, the firm finds that marginal revenue is now higher than marginal cost that the previous level of output, so that the firm increases production.

	Because the firm’s marginal-cost curve determines the quantity of the good the firm is willing to supply at any price, it is the competitive firm’s supply curve.		Because the firm’s marginal-cost curve determines the quantity of the good the firm is willing to supply at any price, it is the competitive firm’s supply curve.

Arthur : /* The firm’s short-run decision to shut down */

2016-02-18T16:15:42Z

The firm’s short-run decision to shut down

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	*Shut down if <math>P < AVC (P = \frac {TR}{Q})</math>		*Shut down if <math>P < AVC (P = \frac {TR}{Q})</math>

	TR=total revenue VC = variable cost Q= Quantity		:<math>TR = total revenue</math>
	AVC = average variable cost (= VC/Q)		:<math>VC = variable cost</math>
			:<math>Q = Quantity</math>
			:<math>AVC = average variable cost (= \frac {VC}{Q})</math>

	If the price doesn’t cover the average variable cost, the firm is better off stopping producing altogether. (Logisch oder?) The firm might reopen it the conditions change. If the firm produces anything, it produces the quantity at which marginal cost equals the price of the good. Yet it the price is less than average variable cost at the quantity, the firm is better off shutting down.		If the price doesn’t cover the average variable cost, the firm is better off stopping producing altogether. (Logisch oder?) The firm might reopen it the conditions change. If the firm produces anything, it produces the quantity at which marginal cost equals the price of the good. Yet it the price is less than average variable cost at the quantity, the firm is better off shutting down.

Arthur : /* The firm’s short-run decision to shut down */

2016-02-18T16:14:52Z

The firm’s short-run decision to shut down

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	If the firm shuts down, it loses all revenue from the sale of its product. At the same time, it saves the variable cost of making its product. Thus the firm shuts down if the revenue that it would get from producing is less than its variable cost of production. Mathematics:		If the firm shuts down, it loses all revenue from the sale of its product. At the same time, it saves the variable cost of making its product. Thus the firm shuts down if the revenue that it would get from producing is less than its variable cost of production. Mathematics:
	*Shut down if TR < VC		*Shut down if <math>TR < VC</math>
	*Shut down if TR/Q < VC/Q		*Shut down if <math>\frac {TR}{Q} < \frac {VC}{Q}</math>
	*Shut down if P<AVC (P=TR/Q)		*Shut down if <math>P < AVC (P = \frac {TR}{Q})</math>

	TR=total revenue VC = variable cost Q= Quantity		TR=total revenue VC = variable cost Q= Quantity

Firms in competitive markets - Historique des versions

2001:569:71B3:2B00:1423:6D16:31A6:5629 le 13 avril 2020 à 05:10

Arthur le 8 mai 2018 à 05:31

Arthur le 8 mai 2018 à 05:24

Arthur le 8 mai 2018 à 05:23

Arthur : /* The long run: market supply with entry and exit */

Arthur : /* The revenue of a competitive firm */

Arthur : /* The revenue of a competitive firm */

Arthur : /* The marginal cost curve and the firm’s supply decision */

Arthur : /* The firm’s short-run decision to shut down */

Arthur : /* The firm’s short-run decision to shut down */

Arthur : /* The long run: market supply with entry and exit */

Arthur : /* The revenue of a competitive firm */

Arthur : /* The revenue of a competitive firm */

Arthur : /* The marginal cost curve and the firm’s supply decision */

Arthur : /* The firm’s short-run decision to shut down */

Arthur : /* The firm’s short-run decision to shut down */