微观经济学（第八版-英文）课件：Profit Maximization and Competitive Supply

8.1

PerfectlyCompetitiveMarkets8.2

Profitmaximization8.3

MarginalRevenue,MarginalCost,andProfitMaximization8.4

ChoosingOutputintheShortRun8.5

TheCompetitiveFirm’sShort-RunSupplyCurve8.6

TheShort-RunMarketSupplyCurve8.7 ChoosingOutputintheLong-Run8.8 TheIndustry’sLong-RunSupplyCurve

ProfitMaximization

andCompetitiveSupplyCHAPTEROUTLINEPerfectlyCompetitiveMarkets8.1PRICETAKINGBecauseeachindividualfirmsellsasufficientlysmallproportionoftotalmarketoutput,itsdecisionshavenoimpactonmarketprice.●pricetaker Firmthathasnoinfluenceovermarketpriceandthustakesthepriceasgiven.PRODUCTHOMOGENEITYWhentheproductsofallofthefirmsinamarketareperfectlysubstitutablewithoneanother—thatis,whentheyarehomogeneous—nofirmcanraisethepriceofitsproductabovethepriceofotherfirmswithoutlosingmostorallofitsbusiness.Incontrast,whenproductsareheterogeneous,eachfirmhastheopportunitytoraiseitspriceabovethatofitscompetitorswithoutlosingallofitssales.Theassumptionofproducthomogeneityisimportantbecauseitensuresthatthereisasinglemarketprice,consistentwithsupply-demandanalysis.FREEENTRYANDEXIT●freeentry(orexit)Conditionunderwhichtherearenospecial

coststhatmakeitdifficultforafirmtoenter(orexit)anindustry.WhenIsaMarketHighlyCompetitive?Manymarketsarehighlycompetitiveinthesensethatfirmsfacehighlyelasticdemandcurvesandrelativelyeasyentryandexit.Butthereisnosimpleruleofthumbtodescribewhetheramarketisclosetobeingperfectlycompetitive.Becausefirmscanimplicitlyorexplicitlycolludeinsettingprices,thepresenceofmanyfirmsisnotsufficientforanindustrytoapproximateperfectcompetition.Conversely,thepresenceofonlyafewfirmsinamarketdoesnotruleoutcompetitivebehavior.Withfreeentryandexit,buyerscaneasilyswitchfromonesuppliertoanother,andsupplierscaneasilyenterorexitamarket.ProfitMaximization8.2DoFirmsMaximizeProfit?Theassumptionofprofitmaximizationisfrequentlyusedinmicroeconomicsbecauseitpredictsbusinessbehaviorreasonablyaccuratelyandavoidsunnecessaryanalyticalcomplications.Forsmallerfirmsmanagedbytheirowners,profitislikelytodominatealmostalldecisions.Inlargerfirms,however,managerswhomakeday-to-daydecisionsusuallyhavelittlecontactwiththeowners.Firmsthatdonotcomeclosetomaximizingprofitarenotlikelytosurvive.Thefirmsthatdosurvivemakelong-runprofitmaximizationoneoftheirhighestpriorities.AlternativeFormsofOrganization●cooperativeAssociationofbusinessesorpeoplejointlyownedandoperatedbymembersformutualbenefit.●condominium Ahousingunitthatisindividuallyownedbutprovidesaccesstocommonfacilitiesthatarepaidforandcontrolledjointlybyanassociationofowners.Whileownersofcondominiumsmustjoinwithfellowcondoownerstomanagecommon,theycanmaketheirowndecisionsastohowtomanagetheirindividualunits.Incontrast,co-opssharejointliabilityonanyoutstandingmortgageontheco-opbuildingandaresubjecttomorecomplexgovernancerules.Nationwide,condosarefarmorecommonthanco-ops,outnumberingthembyafactorofnearly10to1.Inthisregard,NewYorkCityisverydifferentfromtherestofthenation—co-opsaremorepopular,andoutnumbercondosbyafactorofabout4to1.ManybuildingrestrictionsinNewYorkhavelongdisappeared,andyettheconversionofapartmentsfromco-opstocondoshasbeenrelativelyslow.Thetypicalcondominiumapartmentisworthabout15.5percentmorethanaequivalentapartmentheldintheformofaco-op.Clearly,holdinganapartmentintheformofaco-opisnotthebestwaytomaximizetheapartment’svalue.ItappearsthatinNewYork,manyownershavebeenwillingtoforgosubstantialamountsofmoneyinordertoachievenon-monetarybenefits.EXAMPLE8.1CONDOMINIUMSVERSUSCOOPERATIVESINNEWYORKCITYMarginalRevenue,MarginalCost,

andProfitMaximization8.3●profitDifferencebetweentotalrevenueandtotalcost.π(q)=R(q)−C(q)●marginalrevenueChangeinrevenueresultingfromaone-unitincreaseinoutput.Afirmchoosesoutputq*,sothatprofit,thedifferenceABbetweenrevenueRandcostC,ismaximized.Atthatoutput,marginalrevenue(theslopeoftherevenuecurve)isequaltomarginalcost(theslopeofthecostcurve).Δπ/Δq=ΔR/Δq−ΔC/Δq=0MR(q)=MC(q)PROFITMAXIMIZATONINTHESHORTRUNFIGURE8.1DemandandMarginalRevenueforaCompetitiveFirmAcompetitivefirmsuppliesonlyasmallportionofthetotaloutputofallthefirmsinanindustry.Therefore,thefirmtakesthemarketpriceoftheproductasgiven,choosingitsoutputontheassumptionthatthepricewillbeunaffectedbytheoutputchoice.In(a)thedemandcurvefacingthefirmisperfectlyelastic,eventhoughthemarketdemandcurvein(b)

isdownwardsloping.DEMANDCURVEFACEDBYACOMPETITIVEFIRMFIGURE8.2Thedemandcurvedfacinganindividualfirminacompetitivemarketisbothitsaveragerevenuecurveanditsmarginalrevenuecurve.Alongthisdemandcurve,marginalrevenue,averagerevenue,andpriceareallequal.ProfitMaximizationbyaCompetitiveFirmMC(q)=MR=PBecauseeachfirminacompetitiveindustrysellsonlyasmallfraction

oftheentireindustryoutput,howmuchoutputthefirmdecidestosell

willhavenoeffectonthemarketpriceoftheproduct.Becauseitisapricetaker,thedemandcurvedfacinganindividualcompetitivefirmisgivenbyahorizontalline.Aperfectlycompetitivefirmshouldchooseitsoutputsothatmarginalcostequalsprice:Short-RunProfitMaximizationbyaCompetitiveFirmACOMPETITIVEFIRMMAKINGAPOSITIVEPROFITFIGURE8.3Intheshortrun,thecompetitivefirmmaximizesitsprofitbychoosinganoutputq*atwhichitsmarginalcostMCisequaltothepriceP(ormarginalrevenueMR)ofitsproduct.TheprofitofthefirmismeasuredbytherectangleABCD.Anychangeinoutput,whetherloweratq1

orhigheratq2,willleadtolowerprofit.OutputRule:Ifafirmisproducinganyoutput,itshouldproduceatthelevelatwhichmarginalrevenueequalsmarginalcost.ChoosingOutputintheShortRun8.4WhenShouldtheFirmShutDown?ACOMPETITIVEFIRMINCURRINGLOSSESFIGURE8.4AcompetitivefirmshouldshutdownifpriceisbelowAVC.Thefirmmayproduceintheshortrunifpriceisgreaterthanaveragevariablecost.THESHORT-RUNOUTPUTOFANALUMINUMSMELTINGPLANTFIGURE8.5EXAMPLE8.2THESHORT-RUNOUTPUTDECISIONOFANALUMINUMSMELTINGPLANTHowshouldthemanagerdeterminetheplant’sprofitmaximizingoutput?Recallthatthesmeltingplant’sshort-runmarginalcostofproductiondependsonwhetheritisrunningtwoorthreeshiftsperday.Intheshortrun,theplantshouldproduce600tonsperdayifpriceisabove$1140pertonbutlessthan$1300perton.Ifpriceisgreaterthan$1300perton,itshouldrunanovertimeshiftandproduce900tonsperday.Ifpricedropsbelow$1140perton,thefirmshouldstopproducing,butitshouldprobablystayinbusinessbecausethepricemayriseinthefuture.Theapplicationoftherulethatmarginalrevenueshouldequalmarginalcostdependsonamanager’sabilitytoestimatemarginalcost.First,exceptunderlimitedcircumstances,averagevariablecostshouldnotbeusedasasubstituteformarginalcost.EXAMPLE8.3SOMECOSTCONSIDERATIONSFORMANAGERSCurrentoutput100unitsperday,80ofwhichareproducedduringtheregularshiftand20ofwhichareproducedduringovertimeMaterialscost$8perunitforalloutputLaborcost$30perunitfortheregularshift;$50perunitfortheovertimeshiftForthefirst80unitsofoutput,averagevariablecostandmarginalcostarebothequalto$38perunit.Whenoutputincreasesto100units,marginalcostishigherthanaveragevariablecost,soamanagerwhoreliesonaveragevariablecostwillproducetoomuch.Also,asingleitemonafirm’saccountingledgermayhavetwocomponents,onlyoneofwhichinvolvesmarginalcost.Finally,allopportunitycostsshouldbeincludedindeterminingmarginalcost.Thesethreeguidelinescanhelpamanagertomeasuremarginalcostcorrectly.Failuretodosocancauseproductiontobetoohighortoolowandtherebyreduceprofit.TheCompetitiveFirm’sShort-run

SupplyCurve8.5THESHORT-RUNSUPPLYCURVEFORACOMPETITIVEFIRMFIGURE8.6Thefirm’ssupplycurveistheportionofthemarginalcostcurveforwhichmarginalcostisgreaterthanaveragevariablecost.Intheshortrun,thefirmchoosesitsoutputsothatmarginalcostMCisequaltopriceaslongasthefirmcoversitsaveragevariablecost.Theshort-runsupplycurveisgivenbythecrosshatchedportionofthemarginalcostcurve.THERESPONSEOFAFIRMTOACHANGEININPUTPRICEFIGURE8.7Whenthemarginalcostofproductionforafirmincreases(fromMC1toMC2),thelevelofoutputthatmaximizesprofitfalls(fromq1toq2).TheFirm’sResponsetoanInputPriceChangeTHESHORT-RUNPRODUCTIONOFPETROLEUMPRODUCTSFIGURE8.8EXAMPLE8.2THESHORT-RUNPRODUCTIONOF

PETROLEUMPRODUCTSAlthoughplentyofcrudeoilisavailable,theamountthatyourefinedependsonthecapacityoftherefineryandthecostofproduction.Astherefineryshiftsfromoneprocessingunittoanother,themarginalcostofproducingpetroleumproductsfromcrudeoilincreasessharplyatseverallevelsofoutput.Asaresult,theoutputlevelcanbeinsensitivetosomechangesinpricebutverysensitivetoothers.TheShort-RunMarketSupplyCurve8.6INDUSTRYSUPPLYINTHESHORTRUNFIGURE8.9Theshort-runindustrysupplycurveisthesummationofthesupplycurvesoftheindividualfirms.Becausethethirdfirmhasaloweraveragevariablecostcurvethanthefirsttwofirms,themarketsupplycurveSbeginsatpriceP1andfollowsthemarginalcostcurveofthethirdfirmMC3untilpriceequalsP2,whenthereisakink.ForP2andallpricesaboveit,theindustryquantitysuppliedisthesumofthequantitiessuppliedbyeachofthethreefirms.ElasticityofMarketSupplyEs=(ΔQ/Q)/(ΔP/P)EXAMPLE8.5THESHORT-RUNWORLDSUPPLYOFCOPPERCostsofmining,smelting,andrefiningcopperdifferbecauseofdifferencesinlaborandtransportationcostsandbecauseofdifferencesinthecoppercontentoftheore.TABLE8.1THEWORLDCOPPERINDUSTRY(2010)COUNTRYANNUALPRODUCTION(THOUSANDMETRICTONS)MARGINALCOST(DOLLARSPERPOUND)Australia9002.30Canada4802.60Chile5,5201.60Indonesia8401.80Peru12851.70Poland4302.40Russia7501.30US11201.70Zambia7701.50THESHORT-RUNWORLDSUPPLYOFCOPPERFIGURE8.10EXAMPLE8.5THESHORT-RUNWORLDSUPPLYOFCOPPERTheworldsupplycurveisobtainedbysummingeachnation’ssupplycurvehorizontally.Theelasticityofsupplydependsonthepriceofcopper.Atrelativelylowprices,thecurveisquiteelasticbecausesmallpriceincreasesleadtolargeincreasesinthequantityofcoppersupplied.Athigherprices—say,above$2.40perpound—thecurvebecomesmoreinelasticbecause,atthoseprices,mostproducerswouldbeoperatingclosetooratcapacity.Thesupplycurveforworldcopperisobtainedbysummingthemarginalcostcurvesforeachofthemajorcopper-producingcountries.Thesupplycurveslopesupwardbecausethemarginalcostofproductionrangesfromalowof65centsinRussiatoahighof$1.30inCanada.ProducerSurplusintheShortRun●producersurplusSumoverallunitsproducedbyafirmof

differencesbetweenthemarketpriceofagoodandthemarginalcostofproduction.PRODUCERSURPLUSFORAFIRMFIGURE8.11Theproducersurplusforafirmismeasuredbytheyellowareabelowthemarketpriceandabovethemarginalcostcurve,betweenoutputs0andq*,theprofit-maximizingoutput.Alternatively,itisequaltorectangleABCDbecausethesumofallmarginalcostsuptoq*isequaltothevariablecostsofproducingq*.PRODUCERSURPLUSVERSUSPROFITPRODUCERSURPLUSFORAMARKETFIGURE8.12Producersurplus=PS=R−VCProfit=π=R−VC−FCTheproducersurplusforamarketistheareabelowthemarketpriceandabovethemarketsupplycurve,between0andoutputQ*.Long-RunProfitMaximizationOUTPUTCHOICEINTHELONGRUNFIGURE8.13Thefirmmaximizesitsprofitbychoosingtheoutputatwhichpriceequalslong-runmarginalcostLMC.Inthediagram,thefirmincreasesitsprofitfromABCDtoEFGDbyincreasingitsoutputinthelongrun.Thelong-runoutputofaprofit-maximizingcompetitivefirmisthepointatwhichlong-runmarginalcostequalstheprice.ChoosingOutputintheLongRun8.7Long-RunCompetitiveEquilibriumACCOUNTINGPROFITANDECONOMICPROFITπ=R−wL−rKZEROECONOMICPROFIT●zeroeconomicprofitAfirmisearninganormalreturnonitsinvestment—i.e.,itisdoingaswellasitcouldbyinvestingitsmoneyelsewhere.ENTRYANDEXITInamarketwithentryandexit,afirmenterswhenitcanearnapositivelong-runprofitandexitswhenitfacestheprospectofalong-runloss.

●long-runcompetitiveequilibrium

Allfirmsinanindustryaremaximizingprofit,nofirmhasanincentivetoenterorexit,andpriceissuchthatquantitysuppliedequalsquantitydemanded.Whenafirmearnszeroeconomicprofit,ithasnoincentivetoexittheindustry.Likewise,otherfirmshavenospecialincentivetoenter.Along-runcompetitiveequilibriumoccurswhenthreeconditionshold:1. Allfirmsintheindustryaremaximizingprofit.2. Nofirmhasanincentiveeithertoenterorexittheindustrybecauseallfirmsareearningzeroeconomicprofit.3.

Thepriceoftheproductissuchthatthequantitysuppliedbythe industryisequaltothequantitydemandedbyconsumers.LONG-RUNCOMPETITIVEEQUILIBRIUMFIGURE8.14Initiallythelong-runequilibriumpriceofaproductis$40perunit,shownin(b)astheintersectionofdemandcurveDandsupplycurveS1.In(a)weseethatfirmsearnpositiveprofitsbecauselong-runaveragecostreachesaminimumof$30(atq2).PositiveprofitencouragesentryofnewfirmsandcausesashifttotherightinthesupplycurvetoS2,asshownin(b).Thelong-runequilibriumoccursatapriceof$30,asshownin(a),whereeachfirmearnszeroprofitandthereisnoincentivetoenterorexittheindustry.FIRMSHAVINGIDENTICALCOSTSToseewhyalltheconditionsforlong-runequilibriummusthold,assumethatallfirmshaveidenticalcosts.Nowconsiderwhathappensiftoomanyfirmsentertheindustryinresponsetoanopportunityforprofit.Theindustrysupplycurvewillshiftfurthertotheright,andpricewillfall.Onlywhenthereisnoincentivetoexitorentercanamarketbeinlong-runequilibrium.FIRMSHAVINGDIFFERENTCOSTSNowsupposethatallfirmsintheindustrydonothaveidenticalcostcurves.Perhapsonefirmhasapatentthatletsitproduceataloweraveragecostthanalltheothers.Inthatcase,itisconsistentwithlong-runequilibriumforthatfirmtoearnagreateraccountingprofitandtoenjoyahigherproducersurplusthanotherfirms.Ifthepatentisprofitable,otherfirmsintheindustrywillpaytouseit.Theincreasedvalueofthepatentthusrepresentsanopportunitycosttothefirmthatholdsit.Itcouldselltherightstothepatentratherthanuseit.Ifallfirmsareequallyefficientotherwise,theeconomicprofitofthefirmfallstozero.THEOPPORTUNITYCOSTOFLANDThereareotherinstancesinwhichfirmsearningpositiveaccountingprofitmaybeearningzeroeconomicprofit.Suppose,forexample,thataclothingstorehappenstobelocatednearalargeshoppingcenter.Theadditionalflowofcustomerscansubstantiallyincreasethestore’saccountingprofitbecausethecostofthelandisbasedonitshistoricalcost.Whentheopportunitycostoflandisincluded,theprofitabilityoftheclothingstoreisnohigherthanthatofitscompetitors.EconomicRentIncompetitivemarkets,inboththeshortandthelongrun,economicrentisoftenpositiveeventhoughprofitiszero.●economicrentAmountthatfirmsarewillingtopayforaninputlesstheminimumamountnecessarytoobtainit.Inthelongrun,inacompetitivemarket,theproducersurplusthatafirmearnsontheoutputthatitsellsconsistsoftheeconomicrentthatitenjoysfromallitsscarceinputs.ProducerSurplusintheLongRunFIRMSEARNZEROPROFITINLONG-RUNEQUILIBRIUMFIGURE8.15Inlong-runequilibrium,allfirmsearnzeroeconomicprofit.In(a),abaseballteaminamoderate-sizedcitysellsenoughticketssothatprice($7)isequaltomarginalandaveragecost.In(b),thedemandisgreater,soa$10pricecanbecharged.Theteamincreasessalestothepointatwhichtheaveragecostofproductionplustheaverageeconomicrentisequaltotheticketprice.Whentheopportunitycostassociatedwithowningthefranchiseistakenintoaccount,theteamearnszeroeconomicprofit.TheIndustry’sLong-RunSupplyCurve8.8Constant-CostIndustry●constant-costindustryIndustrywhoselong-runsupplycurveishorizontal.In(b),thelong-runsupplycurveinaconstant-costindustryisahorizontallineSL.Whendemandincreases,initiallycausingapricerise,thefirminitiallyincreasesitsoutputfromq1toq2,asshownin(a).Buttheentryofnewfirmscausesashifttotherightinindustrysupply.Becauseinputpricesareunaffectedbytheincreasedoutputoftheindustry,entryoccursuntiltheoriginalpriceisobtained(atpointBin(b)).Thelong-runsupplycurveforaconstant-costindustryis,therefore,ahorizontallineatapricethatisequaltothelong-runminimumaveragecostofproduction.LONG-RUNSUPPLYINACONSTANTCOSTINDUSTRYFIGURE8.16TheIndustry’sLong-RunSupplyCurve8.8Increasing-CostIndustry●increasing-costindustryIndustrywhoselong-runsupplycurveisupwardsloping.LONG-RUNSUPPLYINANINCREASINGCOSTINDUSTRYFIGURE8.17In(b),thelong-runsupplycurveinanincreasing-costindustryisanupward-slopingcurveSL.Whendemandincreases,initiallycausingapricerise,thefirmsincreasetheiroutputfromq1toq2

in(a).Inthatcase,theentryofnewfirmscausesashifttotherightinsupplyfromS1toS2.Becauseinputpricesincreaseasaresult,thenewlong-runequilibriumoccursatahigherpricethantheinitialequilibrium.Inanincreasing-costindustry,thelong-runindustrysupplycurveisupwardsloping.Decreasing-CostIndustry●decreasing-costindustryIndustrywhoselong-runsupplycurveisdownwardsloping.Youhavebeenintroducedtoindustriesthathaveconstant,increasing,anddecreasinglong-runcosts.Wesawthatthesupplyofcoffeeisextremelyelasticinthelongrun.Thereasonisthatlandforgrowingcoffeeiswidelyavailableandthecostsofplantingandcaringfortreesremainsconstantasthevolumegrows.Thus,coffeeisaconstant-costindustry.Theoilindustryisanincreasingcostindustrybecausethereisalimitedavailabilityofeasilyaccessible,large-volumeoilfields.Finally,adecreasing-costindustry.Intheautomobileindustry,certaincostadvantagesarisebecauseinputscanbeacquiredmorecheaplyasthevolumeofproductionincreases.EXAMPLE8.6CONSTANT-,INCREASING-,ANDDECREASING-COSTINDUSTRIES:COFFEE,OIL,ANDAUTOMOBILESTheEffectsofaTaxAnoutputtaxraisesthefirm’smarginalcostcurvebytheamountofthetax.Thefirmwillreduceitsoutputtothepointatwhichthemarginalcostplusthetaxisequaltothepriceoftheproduct.EFFECTOFANOUTPUTTAXONACOMPETITIVEFIRM’SOUTPUTFIGURE8.18EFFECTOFANOUTPUTTAXONINDUSTRYOUTPUTFIGURE8.19Anoutputtaxplacedonallfirmsinacompetitivemarketshiftsthesupplycurvefortheindustryupwardbytheamountofthetax.Thisshiftraisesthemarketpriceoftheproductandlowersthetotaloutputoftheindustry.Long-RunElasticityofSupplyThelong-runelasticityofindustrysupplyisdefinedinthesamewayastheshort-runelasticity:Itisthepercentagechangeinoutput(

Q/Q)thatresultsfromapercentagechangeinprice(

P/P).Inaconstant-costindustry,thelong-runsupplycurveishorizontal,andthelong-runsupplyelasticityisinfinitelylarge.(Asmallincreaseinpricewillinduceanextremelylargeincreaseinoutput.)Inanincreasing-costindustry,however,thelong-runsupplyelasticitywillbepositivebutfinite.Becauseindustriescanadjustandexpandinthelongrun,wewouldgenerallyexpectlong-runelasticitiesofsupplytobel