Microeconomics 2011 Chapter 12 微观经济 讲解材料.ppt

Airlines and automobile producers have in the past (2007-2010) faced tough times: Prices were slashed to drive sales and profits were turning into losses. Workers had been laid off temporarily or let go permanently. What determined the firm’s price and profit? Why did firms sometimes stop producing and temporarily lay off their workers? To study competitive markets, we are going to build a model of a market in which competition is as fierce and extreme as. We call this situation “perfect competition.”;What Is Perfect Competition?;How Perfect Competition Arises Perfect competition arises: When firm’s minimum efficient scale is small relative to market demand so there is room for many firms in the industry. And when each firm is perceived to produce a good or service that has no unique characteristics, so consumers don’t care which firm they buy from.;Figure 12.1 illustrates a firm’s revenue concepts. Part (a) shows that market demand and market supply determine the market price that the firm must take.;Figure 12.1(b) shows the firm’s total revenue curve (TR)—the relationship between total revenue and quantity sold. ;Figure 12.1(c) shows the marginal revenue curve (MR). The firm can sell any quantity it chooses at the market price, so marginal revenue equals price and the demand curve for the firm’s product is horizontal at the market price.;The demand for a firm’s product is perfectly elastic because one firm’s sweater is a perfect substitute for the sweater of another firm. The market demand is not perfectly elastic because a sweater is a substitute for some other good.;A perfectly competitive firm’s goal is to make maximum economic profit, given the constraints it faces. So the firm must decide: 1. How to produce at minimum cost 2. What quantity to produce 3. Whether to enter or exit a market We start by looking at the firm’s output decision. ;Profit-Maximizing Output A perfectly competitive firm chooses the output that maximizes its economic profit. One way to fi