Output
The law of
diminishing marginal
return
Input;
ceteris paribus
Total Cost
$
TVC
45º
specialization
Diminishing
return
TFC
Output, Q
Unit Cost
$
ATC
=AVC+AFC
MC
AVC
AFC
Quantity
Unit Cost
$
ATC 3
ATC 1
ATC 2
LRAC
Economies of
scale
Q
$
Unit Cost
ATC
ATC
Technological
improvement
Output
Price Elasticity
$
$
△P
△P
D
△Q
Q
D
△Q
Q
Elasticity along the Demand Curve
$
D
△P
△P
△Q
△Q
Q
Price elasticity and Revenue
$
$
D
D
△P
△P
△Q
Out put
△Q
Out put
Profit Maximizing Output, Q*
Price
MC
MR
Q*
Quantity
Market Demand & Supply
P
S
P*
D
Q*
Q
The Market Supply Curve
P
S
Q
The Demand Curve
P
D
Q
The Demand Curve
P
D = AR
MR
Q
The firm’s supply (curve)
$
MC
ATC
AVC
OUTPUT
Profit maximizing output, Q*
MC
$
P*
MR
Q*
OUTPUT
Perfectly Competitive Market
Firm
Market
$
D
∑MC
$
MC
ATC
P*
Q
Q
Profit attracts new entry
$
S
D
Q
$
S
$
D
S
Q
$
S
D
Q
D
Q
Perfectly Competitive Market
Market
$
D
Firm
$
S
MC
ATC
AR=MR
Q
Q
Equilibrium in Perfectly Competitive Market
$
MC
ATC
MR(Short term)
MR(Long term)
Output
A sudden change in Demand
$
D1 D
$
S
Q
MC
ATC
Q
Monopoly
$
MC
Pm
ATC
D=AR
Q
Qm
MR
Natural Monopoly
$
(Long term)
ATC
D
Q
Price Discriminating Monopoly
$
MC
AC
D=MR
Qm
Q
Price Discriminating vs. Mono-price Monopoly
$
MC
AC
D
MR
Qm
Q
Monopoly vs. Perfect Competition
$
MC
ATC
Pm
D
MR
Qm
Q
Q
Monopolistically Competitive Market
$
MC
ATC
D
MR
Q
Oligopoly
$
MC
MC
D
MR
Q
Price Ceiling /Rent Control
$
Minimum Price / Wage
$
S
D
Q
S
D
Q
Production Control/ Quota
$
S
D
Q
$
S
Consumer
surplus
producer
surplus
D
Q
Labor Market : Demand/ Supply
┌MRP = MP*MR
└MRP = W
$
$
S
D
Q
Q
Monopsony
$
MC
S=AC
P
P*
D
Q*
Q
Q
%
S
D
Funds