Imperfect Competition
Pure Monopolistic Pure
Competition Competition Oligopoly Monopoly
Price = $131
(1) (2) (3) (4) (5) (6)
Total Product Total Fixed Total Variable Total Cost Total Revenue Profit (+)
(Output) (Q) Cost (TFC) Cost (TVC) (TC) (TR) or Loss (-)
9-7
Total Revenue Total Cost Approach
$1800
1700 Break-Even Point
1600 (Normal Profit)
400
300 Profit
200
100
0 1 2 3 4 5 6 7 8 9 10 11 12 13 14
Quantity Demanded (Sold)
9-8
Marginal Revenue Marginal Cost
Approach
0 $-100
1 $100.00 $90.00 $190.00 $90 $131 -59
2 50.00 85.00 135.00 80 131 -8
3 33.33 80.00 113.33 70 131 +53
4 25.00 75.00 100.00 60 131 +124
5 20.00 74.00 94.00 70 131 +185
6 16.67 75.00 91.67 80 131 +236
7 14.29 77.14 91.43 90 131 +277
8 12.50 81.25 93.75 110 131 +298
9 11.11 86.67 97.78 130 131 +299
10 10.00 93.00 103.00 150 131 +280
9-9
Marginal Revenue Marginal Cost
Approach
$200
MR = MC MC
Cost and Revenue
150
P=$131
Economic Profit MR = P
ATC
100
AVC
A=$97.78
50
0
1 2 3 4 5 6 7 8 9 10
Output
9-10
Short Run Profit Maximization
Produce where MR (=P) = MC
Suffer loss, still produce?
Yes if loss is less than fixed cost
Cover variable cost
Shut down if loss greater than
fixed cost
Produce if P > min AVC
9-11
Short Run Loss Minimizing Case
$200
150
Loss
A=$91.67
ATC
100 AVC
P=$81
MR = P
V = $75
50
0
1 2 3 4 5 6 7 8 9 10
Output
9-12
Short Run Shut Down Case
$200
150 MC
ATC
V = $74
100 AVC
MR = P
P=$71
50 Short-Run
Shut Down Point
P < Minimum AVC
$71 < $74
0
1 2 3 4 5 6 7 8 9 10
Output
9-13
Short-Run Supply Curve
MC
e
P5 MR5
d
ATC
P4 MR4
c AVC
P3 MR3
b
P2 MR2
a
P1 MR1
0 Q2 Q3 Q4 Q5
Quantity Supplied
9-15
Short-Run Supply Curve
Firms produce where MR=MC
Examine the MC for the Competitive Firm
Shut-Down Point
(If P is Below)
0 Q2 Q3 Q4 Q5
Quantity Supplied
9-16