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Chapter Twenty-Two Firm Supply
Firm Supply ,[object Object],[object Object],[object Object],[object Object],[object Object]
Market Environments ,[object Object],[object Object],[object Object]
Market Environments ,[object Object],[object Object]
Market Environments ,[object Object]
Market Environments ,[object Object],[object Object]
Market Environments ,[object Object],[object Object]
Pure Competition ,[object Object],[object Object]
Pure Competition ,[object Object],[object Object]
Pure Competition ,[object Object]
Pure Competition Y $/output unit Market Supply Market Demand p e
Pure Competition y $/output unit Market Supply p e p’ At a price of p’, zero is demanded from the firm. Market Demand
Pure Competition y $/output unit Market Supply p e p’ p” At a price of p” the firm faces the entire market demand. At a price of p’, zero is demanded from the firm. Market Demand
Pure Competition ,[object Object]
Pure Competition y $/output unit Market Supply p e p’ p” At a price of p” the firm faces the entire market demand. At a price of p’, zero is demanded from the firm. Market Demand
Pure Competition Y $/output unit p e p’ p” Market Demand
Smallness ,[object Object]
Smallness $/output unit y Firm’s MC The individual firm’s technology causes it always to supply only a small part of the  total quantity demanded at the market price. Firm’s demand   curve p e
The Firm’s Short-Run Supply Decision ,[object Object],[object Object]
The Firm’s Short-Run Supply Decision ,[object Object],[object Object],[object Object]
The Firm’s Short-Run Supply Decision What can the solution y s * look like?
The Firm’s Short-Run Supply Decision What can the solution y s * look like? (a) y s * > 0:  (y) y y s *
The Firm’s Short-Run Supply Decision What can the solution y* look like? (b) y s * = 0:  (y) y y s * = 0
The Firm’s Short-Run Supply Decision For the interior case of y s * > 0, the  first- order maximum profit condition  is That is, So at a profit maximum with y s * > 0, the market price p equals the marginal cost of production at y = y s *.
The Firm’s Short-Run Supply Decision For the interior case of y s * > 0, the  second- order maximum profit condition  is That is, So at a profit maximum with y s * > 0, the firm’s MC curve must be upward-sloping.
The Firm’s Short-Run Supply Decision $/output unit y p e y s * y’ MC s (y)
The Firm’s Short-Run Supply Decision $/output unit y p e y s * y’ At y = y s *, p = MC and MC slopes upwards.  y = y s * is   profit-maximizing. MC s (y)
The Firm’s Short-Run Supply Decision $/output unit y p e y s * y’ At y = y s *, p = MC and MC slopes upwards.  y = y s * is   profit-maximizing. At y = y’, p = MC and MC slopes downwards. y = y’ is profit-minimizing. MC s (y)
The Firm’s Short-Run Supply Decision $/output unit y p e y’ At y = y s *, p = MC and MC slopes upwards.  y = y s * is   profit-maximizing.   So a profit-max.   supply level   can lie only on the upwards   sloping part   of the firm’s   MC curve. MC s (y) y s *
The Firm’s Short-Run Supply Decision ,[object Object]
The Firm’s Short-Run Supply Decision ,[object Object],[object Object],[object Object]
The Firm’s Short-Run Supply Decision ,[object Object]
The Firm’s Short-Run Supply Decision ,[object Object],[object Object]
The Firm’s Short-Run Supply Decision AVC s (y) AC s (y) MC s (y) $/output unit y
The Firm’s Short-Run Supply Decision AVC s (y) AC s (y) MC s (y) $/output unit y
The Firm’s Short-Run Supply Decision AVC s (y) AC s (y) MC s (y) $/output unit y p    AVC s (y)
The Firm’s Short-Run Supply Decision AVC s (y) AC s (y) MC s (y) p    AVC s (y)  y s * > 0.  $/output unit y
The Firm’s Short-Run Supply Decision AVC s (y) AC s (y) MC s (y) p    AVC s (y)  y s * = 0.  $/output unit y p    AVC s (y)  y s * > 0.
The Firm’s Short-Run Supply Decision AVC s (y) AC s (y) MC s (y) p    AVC s (y)  y s * = 0.  The firm’s short-run supply curve $/output unit y p    AVC s (y)  y s * > 0.
The Firm’s Short-Run Supply Decision AVC s (y) AC s (y) MC s (y) The firm’s short-run supply curve Shutdown   point $/output unit y
The Firm’s Short-Run Supply Decision ,[object Object],[object Object],[object Object]
The Firm’s Long-Run Supply Decision ,[object Object],[object Object]
The Firm’s Long-Run Supply Decision ,[object Object],[object Object]
The Firm’s Long-Run Supply Decision ,[object Object],[object Object]
The Firm’s Long-Run Supply Decision ,[object Object]
The Firm’s Long-Run Supply Decision MC(y) AC(y) y $/output unit
The Firm’s Long-Run Supply Decision MC(y) AC(y) y $/output unit p > AC(y)
The Firm’s Long-Run Supply Decision MC(y) AC(y) y $/output unit p > AC(y)
The Firm’s Long-Run Supply Decision MC(y) AC(y) y $/output unit The firm’s long-run supply curve
The Firm’s Long-Run Supply Decision ,[object Object]
The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit AC s (y) MC s (y)
The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit AC s (y) MC s (y) p’ y s * y* y s * is profit-maximizing in this short-run.
The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit AC s (y) MC s (y) p’ y s * y* y s * is profit-maximizing in this short-run.  s
The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit AC s (y) MC s (y) p’ y s * y* The firm can increase profit by increasing x 2  and producing y* output units.  s 
The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit AC s (y) MC s (y) p” y s * y s * is loss-minimizing in this short-run.
The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit AC s (y) MC s (y) p” y s * y s * is loss-minimizing in this short-run. Loss
The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit AC s (y) MC s (y) p” y s * This loss can be eliminated in the long- run by the firm exiting the industry. Loss
The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit
The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit p’ y s * y s * is profit-maximizing in this short-run.
The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit p’ y s * y s * is profit-maximizing in this short-run.  s
The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit p’ y s * y s * is profit-maximizing in this short-run. y* is profit-maximizing in the long-run. y*
The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit p’ y s * y s * is profit-maximizing in this short-run. y* is profit-maximizing in the long-run. y* 
The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit p’ y s * y*  s  The firm can increase profit by reducing x 2  and producing y* units of output.
The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit
The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit
The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit
The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit Short-run supply curves Long-run supply curve
Producer’s Surplus Revisited ,[object Object],[object Object]
Producer’s Surplus Revisited y $/output unit AVC s (y) AC s (y) MC s (y)
Producer’s Surplus Revisited y $/output unit AVC s (y) AC s (y) MC s (y)
Producer’s Surplus Revisited y $/output unit AVC s (y) AC s (y) MC s (y) p y*(p)
Producer’s Surplus Revisited y $/output unit AVC s (y) AC s (y) MC s (y) p PS y*(p)
Producer’s Surplus Revisited So the firm’s producer’s surplus is That is, PS = Revenue - Variable Cost.
Producer’s Surplus Revisited y $/output unit AVC s (y) AC s (y) MC s (y) p PS y*(p)
Producer’s Surplus Revisited y $/output unit AVC s (y) AC s (y) MC s (y) p y*(p)
Producer’s Surplus Revisited y $/output unit AVC s (y) AC s (y) MC s (y) p y*(p) Revenue = py*(p)
Producer’s Surplus Revisited y $/output unit AVC s (y) AC s (y) MC s (y) p y*(p) Revenue = py*(p) c v (y*(p))
Producer’s Surplus Revisited y $/output unit AVC s (y) AC s (y) MC s (y) p PS y*(p)
Producer’s Surplus Revisited ,[object Object],[object Object],[object Object],[object Object]

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Ch22

  • 2.
  • 3.
  • 4.
  • 5.
  • 6.
  • 7.
  • 8.
  • 9.
  • 10.
  • 11. Pure Competition Y $/output unit Market Supply Market Demand p e
  • 12. Pure Competition y $/output unit Market Supply p e p’ At a price of p’, zero is demanded from the firm. Market Demand
  • 13. Pure Competition y $/output unit Market Supply p e p’ p” At a price of p” the firm faces the entire market demand. At a price of p’, zero is demanded from the firm. Market Demand
  • 14.
  • 15. Pure Competition y $/output unit Market Supply p e p’ p” At a price of p” the firm faces the entire market demand. At a price of p’, zero is demanded from the firm. Market Demand
  • 16. Pure Competition Y $/output unit p e p’ p” Market Demand
  • 17.
  • 18. Smallness $/output unit y Firm’s MC The individual firm’s technology causes it always to supply only a small part of the total quantity demanded at the market price. Firm’s demand curve p e
  • 19.
  • 20.
  • 21. The Firm’s Short-Run Supply Decision What can the solution y s * look like?
  • 22. The Firm’s Short-Run Supply Decision What can the solution y s * look like? (a) y s * > 0:  (y) y y s *
  • 23. The Firm’s Short-Run Supply Decision What can the solution y* look like? (b) y s * = 0:  (y) y y s * = 0
  • 24. The Firm’s Short-Run Supply Decision For the interior case of y s * > 0, the first- order maximum profit condition is That is, So at a profit maximum with y s * > 0, the market price p equals the marginal cost of production at y = y s *.
  • 25. The Firm’s Short-Run Supply Decision For the interior case of y s * > 0, the second- order maximum profit condition is That is, So at a profit maximum with y s * > 0, the firm’s MC curve must be upward-sloping.
  • 26. The Firm’s Short-Run Supply Decision $/output unit y p e y s * y’ MC s (y)
  • 27. The Firm’s Short-Run Supply Decision $/output unit y p e y s * y’ At y = y s *, p = MC and MC slopes upwards. y = y s * is profit-maximizing. MC s (y)
  • 28. The Firm’s Short-Run Supply Decision $/output unit y p e y s * y’ At y = y s *, p = MC and MC slopes upwards. y = y s * is profit-maximizing. At y = y’, p = MC and MC slopes downwards. y = y’ is profit-minimizing. MC s (y)
  • 29. The Firm’s Short-Run Supply Decision $/output unit y p e y’ At y = y s *, p = MC and MC slopes upwards. y = y s * is profit-maximizing. So a profit-max. supply level can lie only on the upwards sloping part of the firm’s MC curve. MC s (y) y s *
  • 30.
  • 31.
  • 32.
  • 33.
  • 34. The Firm’s Short-Run Supply Decision AVC s (y) AC s (y) MC s (y) $/output unit y
  • 35. The Firm’s Short-Run Supply Decision AVC s (y) AC s (y) MC s (y) $/output unit y
  • 36. The Firm’s Short-Run Supply Decision AVC s (y) AC s (y) MC s (y) $/output unit y p  AVC s (y)
  • 37. The Firm’s Short-Run Supply Decision AVC s (y) AC s (y) MC s (y) p  AVC s (y) y s * > 0. $/output unit y
  • 38. The Firm’s Short-Run Supply Decision AVC s (y) AC s (y) MC s (y) p  AVC s (y) y s * = 0. $/output unit y p  AVC s (y) y s * > 0.
  • 39. The Firm’s Short-Run Supply Decision AVC s (y) AC s (y) MC s (y) p  AVC s (y) y s * = 0. The firm’s short-run supply curve $/output unit y p  AVC s (y) y s * > 0.
  • 40. The Firm’s Short-Run Supply Decision AVC s (y) AC s (y) MC s (y) The firm’s short-run supply curve Shutdown point $/output unit y
  • 41.
  • 42.
  • 43.
  • 44.
  • 45.
  • 46. The Firm’s Long-Run Supply Decision MC(y) AC(y) y $/output unit
  • 47. The Firm’s Long-Run Supply Decision MC(y) AC(y) y $/output unit p > AC(y)
  • 48. The Firm’s Long-Run Supply Decision MC(y) AC(y) y $/output unit p > AC(y)
  • 49. The Firm’s Long-Run Supply Decision MC(y) AC(y) y $/output unit The firm’s long-run supply curve
  • 50.
  • 51. The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit AC s (y) MC s (y)
  • 52. The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit AC s (y) MC s (y) p’ y s * y* y s * is profit-maximizing in this short-run.
  • 53. The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit AC s (y) MC s (y) p’ y s * y* y s * is profit-maximizing in this short-run.  s
  • 54. The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit AC s (y) MC s (y) p’ y s * y* The firm can increase profit by increasing x 2 and producing y* output units.  s 
  • 55. The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit AC s (y) MC s (y) p” y s * y s * is loss-minimizing in this short-run.
  • 56. The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit AC s (y) MC s (y) p” y s * y s * is loss-minimizing in this short-run. Loss
  • 57. The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit AC s (y) MC s (y) p” y s * This loss can be eliminated in the long- run by the firm exiting the industry. Loss
  • 58. The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit
  • 59. The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit p’ y s * y s * is profit-maximizing in this short-run.
  • 60. The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit p’ y s * y s * is profit-maximizing in this short-run.  s
  • 61. The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit p’ y s * y s * is profit-maximizing in this short-run. y* is profit-maximizing in the long-run. y*
  • 62. The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit p’ y s * y s * is profit-maximizing in this short-run. y* is profit-maximizing in the long-run. y* 
  • 63. The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit p’ y s * y*  s  The firm can increase profit by reducing x 2 and producing y* units of output.
  • 64. The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit
  • 65. The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit
  • 66. The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit
  • 67. The Firm’s Long & Short-Run Supply Decisions MC(y) AC(y) y $/output unit Short-run supply curves Long-run supply curve
  • 68.
  • 69. Producer’s Surplus Revisited y $/output unit AVC s (y) AC s (y) MC s (y)
  • 70. Producer’s Surplus Revisited y $/output unit AVC s (y) AC s (y) MC s (y)
  • 71. Producer’s Surplus Revisited y $/output unit AVC s (y) AC s (y) MC s (y) p y*(p)
  • 72. Producer’s Surplus Revisited y $/output unit AVC s (y) AC s (y) MC s (y) p PS y*(p)
  • 73. Producer’s Surplus Revisited So the firm’s producer’s surplus is That is, PS = Revenue - Variable Cost.
  • 74. Producer’s Surplus Revisited y $/output unit AVC s (y) AC s (y) MC s (y) p PS y*(p)
  • 75. Producer’s Surplus Revisited y $/output unit AVC s (y) AC s (y) MC s (y) p y*(p)
  • 76. Producer’s Surplus Revisited y $/output unit AVC s (y) AC s (y) MC s (y) p y*(p) Revenue = py*(p)
  • 77. Producer’s Surplus Revisited y $/output unit AVC s (y) AC s (y) MC s (y) p y*(p) Revenue = py*(p) c v (y*(p))
  • 78. Producer’s Surplus Revisited y $/output unit AVC s (y) AC s (y) MC s (y) p PS y*(p)
  • 79.