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Chapter 18 - Competition and monopoly. After completing this unit, you should be able to: Understand how firms determine the optimal level of output, demonstrate the differences in output choices between firms in perfect competition and monopoly, compare profits for perfectly competitive firms and monopolies, | Introduction to Economics: Social Issues and Economic Thinking Wendy A. Stock PowerPoint Prepared by Z. Pan Chapter 18 Competition and Monopoly Copyright © 2013 John Wiley & Sons, Inc. / Photo Credit: Daniel Acker/Bloomberg via GettyImages, Inc. 1 Understand how firms determine the optimal level of output Demonstrate the differences in output choices between firms in perfect competition and monopoly Compare profits for perfectly competitive firms and monopolies Assess the economic efficiency of firms in perfect competition versus monopolies Understand why some economists argue for regulation of monopoly power Copyright © 2013 John Wiley & Sons, Inc. 2 After studying this chapter, you should be able to: 2 Profit is the difference between total revenue and total cost. Total Costs include the direct costs and opportunity costs associated with producing a given level of output. Marginal Cost is the change in total cost incurred when an additional unit of output is produced. Copyright © 2013 John Wiley & Sons, Inc. 3 Profits and COSTS 3 Copyright © 2013 John Wiley & Sons, Inc. 4 Costs of production 4 Total Revenue (TR) is the amount of money earned when a supplier sells a given quantity of a good. It is equal to the price of the good (P) multiplied by the quantity of the good sold (Q). TR = P * Q Marginal Revenue (MR) is the change in total revenue earned when an additional unit of output is produced and sold. Copyright © 2013 John Wiley & Sons, Inc. 5 Output and Revenue 5 Copyright © 2013 John Wiley & Sons, Inc. 6 Output and Revenue 6 The Profit-maximizing Output Level for a firm occurs where MR = MC. If MR > MC , increasing output will increase profits. If MR < MC , decreasing output will increase profits. Copyright © 2013 John Wiley & Sons, Inc. 7 THE PROFIT-MAXIMIZING OUTPUT LEVEL 7 Copyright © 2013 John Wiley & Sons, Inc. 8 THE PROFIT-MAXIMIZING OUTPUT LEVEL 8 Copyright © 2013 John Wiley & Sons, Inc. 9 THE PROFIT-MAXIMIZING OUTPUT LEVEL 9 Perfect Competition is a | Introduction to Economics: Social Issues and Economic Thinking Wendy A. Stock PowerPoint Prepared by Z. Pan Chapter 18 Competition and Monopoly Copyright © 2013 John Wiley & Sons, Inc. / Photo Credit: Daniel Acker/Bloomberg via GettyImages, Inc. 1 Understand how firms determine the optimal level of output Demonstrate the differences in output choices between firms in perfect competition and monopoly Compare profits for perfectly competitive firms and monopolies Assess the economic efficiency of firms in perfect competition versus monopolies Understand why some economists argue for regulation of monopoly power Copyright © 2013 John Wiley & Sons, Inc. 2 After studying this chapter, you should be able to: 2 Profit is the difference between total revenue and total cost. Total Costs include the direct costs and opportunity costs associated with producing a given level of output. Marginal Cost is the change in total cost incurred when an additional unit of output is produced. Copyright © .
