Perfect competition

Volmaakte mededinging (VM)Perfect competition (PC)

Mohr & Fourie: Chapter / Hoofstuk 12ECON121_2013

Prerequisites DEMAND Equilibrium conditions

Shut down rule Profit maximisation rule

PC profit maximisation Equilibrium according to

TR & TC MR & MC SR possibilities

SUPPLY (market & firm) LR equilibrium of PC firm Allocation efficiency Production efficiency

Voorwaardes VRAAG Ewewigsvoorwaardes

Sluitingsreël Winsmaksimeringsreël

VM winsmaksimering Ewewig volgens

TR & TC MR & MC KT moontlikhede

AANBOD (mark & firma) LT ewewig van VM firma Allokasie doeltreffendheid Produksie

doeltreffendheid

Ch 12 Layout Hfst 12 Uitleg

Graphs Market demand for

firm’s product TR & TC Firm’s supply Ab/normal

profit/loss LT firm vs. sector

Tables Concepts

explain, discuss, define

Grafieke Markvraag na firma

se produk TR & TC Firma se aanbod Ab/normale

wins/verlies LT firma vs sektor

Tabelle Konsepte

verduidelik, bespreek, definieer

Outcomes Uitkomstes

Explain (for PC) Prerequisites Demand curve P = AR = MR Equilibrium (SR & LR) Allocation efficiency Production efficiency

Illustrate (for PC) Supply curve Equilibrium (SR & LR) Profit maximisation

Verduidelik (onder VM) Voorwaardes Vraagkromme P = AR = MR Ewewig in die KT & LT Allokasiedoeltreffendh

eid Produksiedoeltreffendh

eid Illustreer (onder VM)

Aanbodkromme Ewewig (LT & KT) Winsmaksimering

Outcomes Uitkomstes

Same concepts: Ch.10-13 Different ‘data’

Total Sum of ...

Average Total divided by Qty

Marginal Change in Total ‘per extra’ unit (change in

Qty)

Selfde konsepte: Hfs.10-13 Ander ‘data’

Totaal Som van ...

Gemiddeld Totaal gedeel deur Qty

Grens (MARGINAAL) Verandering in Totaal ‘per ekstra’ eenheid

(verandering in Qty)

Basic Concepts Basiese Begrippe

NB. Same concepts (calculations), other data

N ... variable input (labour) Q ... Units produced

NB. Dieselfde konsepte (berekeninge), net ander data

N ... veranderlike inset (arbeid)

Q ... eenhede produksie

Basic Concepts Basiese Begrippe

Koste ... CostInkome ... Revenue

Produksie ... Production

Totale

(Total)TC = AC x Q

TC = TVC + TFC

TR = P x Q TP = AP x N

Gemiddeld

(Average)

AC = TC ÷ Q

AC = AVC + AFC

AR = TR ÷ Q

AR = P.Q ÷ Q = PAP = TP ÷ N

Grens

(Marginal)MC = ΔTC ÷ ΔQ MR = ΔTR ÷ ΔQ

MP = ΔTP ÷ ΔN

NB. MARKET

PC = Buyers and sellers can’t influence the price

Profit = TR – TC TR = P x Q (sold)

Perfect competition 7 prerequisites Profit maximisation NB Price takers

AVERAGE, MARGINAL, TOTAL

NB. MARK

VM = Kopers en verkopers kan nie die prys beïnvloed nie!

Wins = TR – TC TR = P x Q (verkoop)

Volmaakte mededinging 7 voorwaardes Winsmaksimering NB Prysnemers

GEMIDDELD, GRENS, TOTAAL

PC VM

Many sellers & buyers No collusion Identical / homogenous

products Free entry to & exit from

market Full knowledge &

information to all participants

No government intervention

Full mobility of production factors

Baie kopers & verkopers Geen sameswering

(collusion) Identiese / homogene

produkte Vrye toetrede & uittrede

tot mark Volledige kennis /

informasie Geen owerheids

inmenging Volle mobiliteit van

produksie faktore

7 Requirements 7 Voorwaardes

Price determined by

MARKET (D & S)

FIRM

price taker

can sell all Q at Pm

DEMAND horizontal

NB!

Prys bepaal deur

MARK (V & A)

FIRMA

prysnemer

kan alle Q verkoop

teen Pm

VRAAG horisontaal NB!

Perfect Competition Volmaakte Mededinging

Fig. 12-1 P = AR = MR = D

Die Sektor

The Sector

Die individuele FIRMA

The individual FIRM

Vraagkromme

Demand curve

=D

MR (Fig.12-1) extra income earned from

selling 1 extra product MR = TR ÷ Q = Pm

AR (Fig.12-1) Average income per unit

over all sales AR = TR ÷ Q = Pm

TR (Fig.12-2) total revenue earned from

all sales TR = P x Q = AR x Q

P = AR = MR = D

MR (Fig.12-1) ekstra inkome verdien uit

verkope van 1 ekstra produk

MR = TR ÷ Q = Pm

AR (Fig.12-1) gemiddelde inkome per

produk uit alle verkope AR = TR ÷ Q = Pm

TR (Fig.12-2) totale inkome verdien uit

alle verkope TR = P x Q = AR x Q

P = AR = MR = D

Revenue Inkome

Totale, Grens- en gemiddelde inkomste onder VM

Q P TR MR AR0 201 202 203 204 205 20

P = AR = MR = D

Totale, Grens- en gemiddelde inkomste onder VM

Q P TR MR AR0 20 0 - -1 20 20 20 202 20 40 20 203 20 60 20 204 20 80 20 205 20 100 20 20

P = AR = MR = D

2 Decisions Worth producing? How much? NB. Price is fixed (MARKET)

2 Rules(valid for ALL market structures)

2 Besluite Moeite werd om te

produseer? Hoeveel? NB. Prys is vas (MARK)

2 Reëls (geld vir ALLE markvorme)

Equilibrium Ewewig

1.) Shut Down Rule / Sluitingsreel

TR >= TVCAR >= AVC

2 Rules(valid for ALL market structures)

2 Reëls (geld vir ALLE markvorme)

Equilibrium Ewewig

2.) Profit Max/ Wins maks

MR = MC

Raam / Box 12-2

P=AR>AC

P=AR<AC

P=AR>AVC

P=AR<AVC

Fixed Costs (FC) must be paid

NB. Long Run (LR) only has

variable costs (VC) Short Run (SR) also has

some fixed costs (FC) Firms produce as long

as AR=P > AVC thus can contribute to FC

Vaste koste (FC) moet betaal word

NB. Langtermyn (LR) is alle

kostes veranderlik (VC), Korttermyn (SR) is sekere

kostes vas (FC). Firmas produseer

solank AR=P > AVC dus kan deel van FC delg

Produce or not? Produseer of nie?

TR < TVC … (P = AR < AVC) Price insufficient to cover VC

only incurs further losses Firm must shut down

TR < TVC … (P = AR < AVC) Prys te min om VC te dek

maak meer verlies firma moet produksie

staak.

Produce or not? Produseer of nie?

TR = TVC … (P = AR = AVC) no contribution to FC does not matter whether

firm continues production or stops

TR > TVC … (P = AR > AVC) contributes to FC

continue production

TR = TVC … (P = AR = AVC) niks FC nie om’t ewe of firma toemaak

of produseer

TR > TVC … (P = AR > AVC) dus dra by tot FC

bly produseer

Profit = TR – TC TR

must cover VC must contribute to FC

Profit max. at biggest difference

between TR, TC Touchline?

with slope of TR touches TC only once

parallel to TR Slope vs. Marginal?

Wins = TR – TC TR

moet VC dek moet bydra tot FC

Wins maks. waar verskil tussen TR,TC

grootste is Raaklyn

met helling TR slegs 1 punt van TC sny

parallel tot TR Helling vs. Grens?

Profit Wins

20

Figuur 12-3 Totale korttermynkoste van die firma

SR – HAVE FIXED COSTS

Fig. 12-3 & 12-4 TR > TC

wins / profit Max. wins / profit

waar die vertikale afstand tussen TR en TC die grootste is

Where the vertical distance between TR & TC is largest

MR = MC TC > TR

verlies / loss TR = TC

gelykbreekpunt breakeven

Max π

Raam/Box 12-3

Max.winsMax. Profit

Max.verliesMax. Losses

MR > MCexpand production

MR = MC (on +slope)maximise profit

MR = MC (on –slope)maximise loss

MR < MCreduce/contract production

Fig. 12-5 MR/MC voorbeeld / example

P = R10 FC = TFC = R5 TP … Tabel 12-1

Q TR MR

TC MC π

0 0 - 5 - -5

1 10 10 9 4 1

2 20 10 15 6 5

3 30 10 23 8 7

4 40 10

33 10 7

5 50 10 45 12 5

Draw MC Draw AC

NB. minimum Type of Profit

Where is Price (MR)?

Abnormal profit P > ACmin

Normal profit P = ACmin

Loss P < ACmin

Qty @ MR = MC TC = AC x Q

Teken MC Teken AC

NB. minimum Wins Tipe

Waar is Prys (MR)? Abnormale wins

P > ACmin Normale wins

P = ACmin Verlies

P < ACmin Qty @ MR = MC TC = AC x Q

NB. Fig 12-6 NB. Fig 12-6

Supply curve Aanbod kromme

Fig. 12-7 Firma AANBOD / Firm SUPPLY

Fig. 12-7 Firma AANBOD / Firm SUPPLY

Fig. 12-7 Firma AANBOD / Firm SUPPLY

Fig. 12-7 Firma AANBOD / Firm SUPPLY

Verlies

Fig. 12-7 Firma AANBOD / Firm SUPPLY

Normal ProfitNormale wins

Fig. 12-7 Firma AANBOD / Firm SUPPLY

Economic profitEkonomiese wins

Volmaakte mededinging (VM)Perfect competition (PC)

Mohr & Fourie: Chapter / Hoofstuk 12ECON121_2013

Maximise profit where quantity produced relates to …

MR = MC MC increases (+slope)

REMEMBER!!! P = MR = AR in PC P is set by MARKET P CANNOT be changed to

increase profit

Wins word gemaksimeer as ‘n firma die opbrengspeil produseer waar ...

MR = MC MC styg (+ helling)

Onthou!!! P = MR = AR onder VM P is deur MARK vasgestel P kan nie verander word

om meer wins te maak nie

RECAP RECAP

RECAP RECAP

1.) Shut Down Rule / Sluitingsreel

TR >= TVCAR >= AVC

2.) Profit Max/ Wins maks

MR = MC

NB. Fig 12-3&4 NB. Fig 12-3&4

Max π

NB. Fig 12-6 NB. Fig 12-6

Demand curve Vraag kromme

All PFs variable Firms can enter/exit

Abnormal Profit (Fig 12-9) more firms enter market Market SUPPLY shifts right Price decreases, reduces

profit

Economic Loss (Fig 12-10) Firms exit market Market SUPPLY decreases Price increases … normal

Profit

Alle PFe veranderlik Firmas kan in/uit tree

Abnormale Wins (Fig 12-9) meer firmas tree toe Mark AANBOD skuif regs Prys daal, verminder wins

Ekonomiese Verlies (Fig 12-10)

Firmas tree uit Mark AANBOD verminder Prys styg ... normale wins

Long run vs Short run Langtermyn vs Korttermyn

Figuur 12-8 Die langtermynewewig van die firma en die bedryf

42

Figuur 12-9 Die individuele firma en die bedryf wanneer die firma aanvanklik ’n ekonomiese wins maak

43

Figuur 12-9 Die individuele firma en die bedryf wanneer die firma aanvanklik ’n ekonomiese wins maak

44

Figuur 12-10 Die individuele firma en die bedryf wanneer die firma aanvanklik ’n ekonomiese verlies ly

45

Figuur 12-10 Die individuele firma en die bedryf wanneer die firma aanvanklik ’n ekonomiese verlies ly

Can expand production Economies of scale Lower unit costs Max. LR profit …

P=SRMC=SRAC=LRAC

Kan produksie uitbrei Skaalvoordele Laer eenheidskostes Maks. LR wins ...

P=SRMC=SRAC=LRAC

LR Production LT Produksie

Impossible to improve one player’s position without worsening the position of another player

Thus all enjoy max. gain – Pareto Optimal

P = MC over LR

PC … Profit max. is allocation efficient

Onmoontlik om iemand beter af te maak sonder om iemand anders te benadeel

almal op maks. voordeel – Pareto optimaliteit

P = MC oor LR

VM ... Winsmaksimering is ook allokasie doeltreffend

Allocative Efficiency Toedelingsdoeltreffendheid

Production level where LRAC is at a minimum

Scarce resources are allocated efficiently

PC … LR equilibrium only at LRACmin

Opbrengspeil waar LRAC by minimum is

Skaars hulpbronne doeltreffend aangewend

VM ... LR ewewig net by LRACmin

Productive Efficiency Produksie Doeltreffendheid

Price taker … Price set by MARKET

DEMAND is horizontal at Pm

7 Prerequisites for PC Profit Max @ MR = MC

Slopes of TR, TC equal SR (Short Run)

Economic Profit (P > ACmin) Normal Profit (P = ACmin) Economic Loss (P < ACmin)

LR (Long Run) ONLY normal profit Firms can exit/enter Profit Max

P=SRMC=SRAC=LRAC

Prys nemer ... Prys vasgestel deur MARK

VRAAG is horisontaal teen Pm

7 Voorvereistes Wins maks. @ MR = MC

Hellings van TR, TC gelyk SR (Kort Termyn)

Ekonomiese Wins (P > ACmin) Normale Wins (P = ACmin) Ekonomiese Verlies (P <

ACmin) LR (Lang Termyn)

SLEGS normale wins Firmas kan in/uittree Wins maks.

P=SRMC=SRAC=LRAC

Recap Hersien