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Showing posts with label perfect competition. Show all posts
Showing posts with label perfect competition. Show all posts

## Comparing perfectly competitive markets with monopolistically competitive markets, the change in surplus and deadweight loss

22:24

This post goes over the math required to show the difference between surplus and equilibrium in a perfectly competitive and monopolistically competitive market. Note that a monopolistically competitive market's math and graph will be the same for a monopoly or an oligopoly.  Here are the equations to work with:

P = 40 - 8Q
MC = 8

## Perfect competition, calculating marignal cost and equilibrium

02:47

This post is a question an answer for the economics of a perfectly competitive firm.

Suppose the following data summarize the cost of a perfectly competitive firm:
a) draw the firm's MC curve on a graph
b) draw the market supply curve on another graph
c) what is the equilibrium price in this market?

 Perfectly Competitive Firm Quantity Total Cost Marginal Cost Fixed Cost Variable Cost 0 100 1 101 2 103 3 106 4 110 5 115 6 121 7 128 8 136

## A perfectly competitive firm competes with the government

13:42
Here is a question I recently received about a perfectly competitive market and the introduction of government produced goods.  What are the relevant economics???

"Assume that hotdogs are produced in a perfectly competitive industry where firms that currently operate and potential competitors both have identical cost curves. Current output is 1 million units a year. What happens to industry equilibrium if a public agency competes with existing producers of hotdogs and gives away 100,000 units per year to randomly selected people who would otherwise have purchased hotdogs. Does the output of hotdogs fall in the short run? In the long run?"

## Perfect competition and economic profit: a question about selling secrets

11:48
Understanding how a perfectly competitive firm works is important for answering some of these "tricky" questions about perfect competition.  To be quite honest, I don't know exactly what the instructor is looking for in this case but I can make a pretty good guess based on the properties of a perfectly competitive market in economics:

## Short run profit max for a perfectly competitive firm

12:32
We know that in the long run in a perfectly competitive market, economic profit should equal zero.  This happens because firms are free to enter and exit the market.  If there is positive economic profit, then firms will enter the market to make those economic profits until there is no economic profit left.  Likewise, if there is negative economic profit, then firms will exit the market to take advantage of opportunities elsewhere until economic profit again equals zero.

However, in the short run it is possible for a perfectly competitive firm to make a positive economic profit, an instructors will commonly ask where the profit maximizing point is.  Another common question is to ask about changes in market, and how this will affect a perfectly competitive firm's profit.

## Perfect competition and profit maximization

16:08
This economics post will go over the profit maximization behavoir of a perfectly competitive firm.

For a related numerical example look here, for a graphical example look here, and finally for a word problem based example look here.

Remember that when calculating the profit maximizaing point for any firm, it is imperative that we set marginal revenue equal to marginal cost (MR=MC).  If we are at any other point, then there are potential gains to be made.  Imagine if MR<MC, at this point we are losing money on the margin.  We are selling too many goods or services, and need to scale back.  If MR>MC, then we are selling too few, and we could sell more goods or services because our marginal gain is greater than our marginal cost.  Below is a graphic showing this relationship for a perfectly competitive firm:

## Perfect competition with a subsidy, algebra review

17:21

Calculating equilibrium and graphing individual firms and their industry counterparts is common in intermediate microeconomics.  This post will go over the economics of of a subsidy and its effects on the individual firm's cost structure as well as how the industry as a whole will change with the introduction of a subsidy.  Here is the question:

In a competitive industry each firm has total costs C = q^2 + 16. Demand is D = 80 – 5P. A \$4 per-unit subsidy is introduced for this good. Provide a pair of fully labeled diagrams showing “The Firm” and “The Industry” to outline the response to this subsidy.

Summary:

1) Solve for the perfectly competitive output level by setting marginal cost equal to average total cost.  This gives us the minimum of ATC, which is the long run equilibrium output for a perfectly competitive market (at the firm level).

2) Use this output quantity to solve for ATC and therefore price (price = ATC = zero economic profit).  Use this price to find quantity demanded using the market demand function.

3)  Figure out what market demand will be, and divide this number by the optimal output per firm to find the number of firms that will produce in this market.

4)  Since the subsidy is per unit, you can subtract the subsidy from the price, and resolve for quantity demanded, firms will enter the market to increase the quantity produced.