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3 Pat Pizza P(i) P(ii)

14 12
Output T cost TR (i) Profit TR (i) Profit
0 10 0 -10 0 -10
1 21 14 -7 12 -9
2 30 28 -2 24 -6
3 41 42 1 36 -5
4 54 56 2 48 -6
5 69 70 1 60 -9

Output T cost MC ATC AVC MR= 14


0 10 0 #DIV/0!
1 21 11 21.0 11.0
2 30 9 15.0 10.0
3 41 11 13.7 10.3
4 54 13 13.5 11.0
5 69 15 13.8 11.8

Shutdown point is minimum point on the AVC curve. This happens at P 10


Supply curve starts from above the price of 10 (the MC) curve
Long-run: MC=LAC =13

4 MR: 24
Q TC MC ATC AVC
0 14 0 0 MR= 12
1 38 24 38.0 24.0
2 48 10 24.0 17.0
3 62 14 20.7 16.0
4 80 18 20.0 16.5 MR = 20
5 102 22 20.4 17.6 MR = 24
6 128 26 21.3 19.0
* Firms with identical cost structure will enter the industry at any price above the lowest ATC po
5
Demand Supply
P Q output MC AVC ATC
3.65 500,000.00 150 6 8.8 15.47
4.4 475,000.00 200 4.6 7.8 11.8
5.2 450,000.00 250 7 7 11
6 425,000.00 300 7.65 7.1 10.43
6.8 400,000.00 350 8.4 7.2 10.06
7.6 375,000.00 400 10 7.5 10
8.4 350,000.00 450 12.4 8 10.22
9.2 325,000.00 500 20.7 9 11
10 300,000.00
10.8 275,000.00 - if each of the 1000 firms, has identical cost structure,
11.6 250,000.00 firm's output by 1000.
- we will then have the MC at every level of market out
11.4 225,000.00
- since MC is a representation of Supply curve - above t
equilibrium occurs when Qs=Qd. this happen at the pri
output is 350,000.00 units. (divide by 1000 you get per
- each firm make economic loss equal = (P-ATC)*Q = (5
- definitely, firms exit this industry.
- if each of the 1000 firms, has identical cost structure,
firm's output by 1000.
- we will then have the MC at every level of market out
- since MC is a representation of Supply curve - above t
13.2 200,000.00 equilibrium occurs when Qs=Qd. this happen at the pri
14 175,000.00 output is 350,000.00 units. (divide by 1000 you get per
- each firm make economic loss equal = (P-ATC)*Q = (5
- definitely, firms exit this industry.
- The minimum insentive for firms to stay in the industr
Economic loss -581 Since P = MC, this exactly happen when each firm prod
P=10.
Firms remaining 750 - On the demand side, at P = 10, market demand is 30
- Dividing total Quantity demand by each firm's output,
firms remaining.

6 980
Demand Supply
P Q output MC AVC Old ATC New ATC
3.65 500,000.00 150 6 8.8 15.47 22.00
4.4 475,000.00 200 4.6 7.8 11.8 16.70
5.2 450,000.00 250 7 7 11 14.92
6 425,000.00 300 7.65 7.1 10.43 13.70
6.8 400,000.00 350 8.4 7.2 10.06 12.86
7.6 375,000.00 400 10 7.5 10 12.45
8.4 350,000.00 450 12.4 8 10.22 12.40
9.2 325,000.00 500 20.7 9 11 12.96
10 300,000.00
10.8 275,000.00
- Everything stay the same in the short run. Output is
11.6 250,000.00 - Due to the increased fixed cost, new ATC at this level
11.4 225,000.00 make economic loss equal = (P-ATC)*Q = (1561).
13.2 200,000.00 - definitely, firms exit this industry.
14 175,000.00 - The minimum insentive for firms to stay in the indust
Since P = MC, this exactly happen when each firm prod
P=12,40.
- On the demand side, at P = 12,40, market demand i
Economic loss -1561 units.
- Dividing total Quantity demand by each firm's output
Firms remaining 444 444 firms remaining.

7
Demand Supply
New P D output MC AVC ATC
2.95 500,000.00 150 6 8.8 15.47
4.13 450,000.00 200 4.6 7.8 11.8
5.3 400,000.00 250 7 7 11
6.48 350,000.00 300 7.65 7.1 10.43
7.65 300,000.00 350 8.4 7.2 10.06
8.83 250,000.00 400 10 7.5 10
10 200,000.00 450 12.4 8 10.22
11.18 150,000.00 500 20.7 9 11

- now total output is 300,000 units at price 7,65


- economic loss (834)
- in the long run, The minimum insentive for firms to st
when P>= ATC. Since P = MC, this exactly happen whe
units, and P=10.
- On the demand side, at P = 10, market demand is 20
- Dividing total Quantity demand by each firm's output,
firms remaining.
Economic loss -834

Firms remaining 500

8 You shouldn't need the solution for this… work it out yourself.
P(iii)
10
TR (i) Profit
0 -10
10 -11 25.0 AVC MC ATC
20 -10
23.0
30 -11
40 -14 21.0
50 -19
19.0

12 10 17.0

15.0

13.0

11.0

9.0
The short-run shutdown point (at price 10)- Also
the point at which the supply curve emerges
7.0

5.0
0 0.5 1 1.5 2 2.5 3 3.5 4
40.0
35.0
20 12
30.0
Profit
25.0 MC
-14
20.0 AVC
15.0 ATC

Shutdown point. 10.0


0 5.0
18
0.0
1 2 3 4 5 6
bove the lowest ATC point - which is in this case: 20

Total output Firms 1000 22 Demand Supply AVC ATC

20
150,000.00
200,000.00 18
250,000.00 16
300,000.00
14
350,000.00
400,000.00 12
450,000.00
10
500,000.00
8
dentical cost structure, then we multiply each 6

ery level of market output. 4


Supply curve - above the AVC, then market
2
. this happen at the price 8,4, and industry
de by 1000 you get per firm). 0
equal = (P-ATC)*Q = (581).
,000

,000

,000
,000

,000

,000

ry.
8
dentical cost structure, then we multiply each 6

ery level of market output. 4


Supply curve - above the AVC, then market
2
. this happen at the price 8,4, and industry
de by 1000 you get per firm). 0
equal = (P-ATC)*Q = (581).

200,000

250,000

300,000
100,000

150,000

350,000
ry.
ms to stay in the industry is when P>= ATC.
en when each firm produce 400 units, and

0, market demand is 300,000.00 units.


d by each firm's output, we end up having 750

Total output Firms 1000 24 Demand Supply AVC ATC

22
150,000.00
20
200,000.00
250,000.00 18
300,000.00 16
350,000.00
14
400,000.00
12
450,000.00
500,000.00 10
8

he short run. Output is 350 units a firm. 6


t, new ATC at this level is 12,86.each firm 4
ATC)*Q = (1561).
try. 2
ms to stay in the industry is when P>= ATC. 0
en when each firm produce 450 units, and
200,000

250,000

300,000
100,000

150,000

350,000
2,40, market demand is approx. 200,000.00

d by each firm's output, we end up having

Total output Firms 1000 22 Demand Supply AVC ATC

20
150,000.00
200,000.00 18
250,000.00 16
300,000.00
14
350,000.00
400,000.00 12
450,000.00 10

6
14

12

10
500,000.00
8
nits at price 7,65 6

insentive for firms to stay in the industry is 4


his exactly happen when each firm produce 400
2
0, market demand is 200,000.00 units. 0
d by each firm's output, we end up having 500

200,000

250,000

300,000
100,000

150,000

350,000
shutdown point (at price 10)- Also
which the supply curve emerges

3 3.5 4 4.5

MC
AVC
ATC

5 6

TC
,000

,000

,000

,000

,000
,000
TC
TC
300,000 300,000

350,000 350,000

400,000 400,000

450,000 450,000

500,000 500,000

550,000 550,000
300,000

350,000

400,000

450,000

500,000

550,000