\/ Profit-Maximizing Firms in Perfectly Competitive Markets Profit maximization Profit = Total Revenue- All Costs (explicit implicit) o Profit-Maximizing Firms Goal of the firm is to maximize the difference between total revenues and total costs Chapter 6: Perfectly Competitive Supply Slide 16
MB MC Chapter 6: Perfectly Competitive Supply Slide 16 Profit-Maximizing Firms in Perfectly Competitive Markets ◼ Profit Maximization ⚫ Profit =Total Revenue - All Costs (explicit & implicit) ⚫ Profit-Maximizing Firms _____Goal of the firm is to maximize the difference between total revenues and total costs
MEMo Profit-Maximizing Firms in Perfectly Competitive Markets The Perfectly Competitive Market A market in which no individual supplier has significant influence on the market price of the product A Price Taker o a firm that has no influence over the price at which it sells its product Chapter 6: Perfectly Competitive Supply Slide 17
MB MC Chapter 6: Perfectly Competitive Supply Slide 17 Profit-Maximizing Firms in Perfectly Competitive Markets ◼ The Perfectly Competitive Market ⚫ A market in which no individual supplier has significant influence on the market price of the product ◼ A Price Taker ⚫ A firm that has no influence over the price at which it sells its product
MEMo Profit-Maximizing Firms in Perfectly Competitive Markets The characteristics of perfect competition 1. All firms sell the same standardized product 2. The market has many buyers and sellers each of which buys or sells only a small fraction of the total quantity exchanged 3. Productive resources are mobile 4. Buyers and sellers are well informed Chapter 6: Perfectly Competitive Supply Slide 18
MB MC Chapter 6: Perfectly Competitive Supply Slide 18 Profit-Maximizing Firms in Perfectly Competitive Markets ◼ The Characteristics of Perfect Competition 1. All firms sell the same standardized product. 2. The market has many buyers and sellers, each of which buys or sells only a small fraction of the total quantity exchanged. 3. Productive resources are mobile 4. Buyers and sellers are well informed
The Demand Curve Facing Perfectly Competitive Firm Market supply and demand D Market Quantity (units/month) Chapter 6: Perfectly Competitive Supply Slide 19
MB MC Chapter 6: Perfectly Competitive Supply Slide 19 The Demand Curve Facing Perfectly Competitive Firm P0 Q0 S D Market Quantity (units/month) Price ($/unit) Market supply and demand
The Demand Curve Facing a Perfectly Competitive Firm Individual firm demand D Indiv idual Firm's Quantity (units/month) Chapter 6: Perfectly Competitive Supply Slide 20
MB MC Chapter 6: Perfectly Competitive Supply Slide 20 Di P0 The Demand Curve Facing a Perfectly Competitive Firm Price ($/unit) Individual Firm’s Quantity (units/month) Individual firm demand