economics denzel presentation (perfect competition)
TRANSCRIPT
Denzel Partnership PresentsDenzel Partnership Presents
Sushi 360ºSushi 360º
The Nature of Our MarketThe Nature of Our Market
Perfect competitionPerfect competition
Our competition is fierceOur competition is fierce
Advertising is uselessAdvertising is useless
All information is publicAll information is public
The Nature of Our MarketThe Nature of Our Market
Demand is extremely elasticDemand is extremely elastic
The large market reigns supreme over pricesThe large market reigns supreme over prices
Every product is substitutable with others in the marketEvery product is substitutable with others in the market
EfficientEfficient
Easy entry and exitEasy entry and exit
GraphsGraphsImportant points of Important points of perfect competitionperfect competition
Q u a n t it y
Cost
= = P M R= AR D
Long run equilibrium in perfect competition
MC
AC
Qe 0
Long-run equilibrium (industry)
Price
Quantity
S
D
0
P
Q^ (industry)
Cost
Cost
QuantityQuantity
P = MR= AR= DP = MR= AR= D
MCMC
ACAC
Q1Q1
CC
P1P1
Firm in perfect competition making supernormal Firm in perfect competition making supernormal profitprofit
00
8
Pri
ce
Q u a n t it y
S1
D
P1
Q1
S2
P2
Q20
Cost
Q u a n t it y
P1
MC
AC
Q1
C
P1
P2
Q2
Th e im p a c t o n a m a r k e t o f
s u p e r n o rm a l p r o f it
0
Short-run losses
CostCost
QuantityQuantity
CC
PP
LossLoss
MCMCACAC
P=MR=AR=DP=MR=AR=D
Break-even price
Cost
Quantity
MCAC
P=MR=AR=D
Shut down point
Cost
Output
MC AC
P=MR=AR=D
AVCC
E
D
B
PA
P1
Q0
LossLoss
How We Determine CostHow We Determine Cost
Price is completely determined by the marketPrice is completely determined by the market
Price takers not price makersPrice takers not price makers
Costs must meet market priceCosts must meet market price
Variable: wages, suppliesVariable: wages, supplies
Fixed: rentFixed: rent
AdvantagesAdvantages
We can easily enter the market with little investmentWe can easily enter the market with little investment
Necessity for efficiency keeps us competitiveNecessity for efficiency keeps us competitive
We have a huge market before usWe have a huge market before us
Free information can keep us innovativeFree information can keep us innovative
Safe and reliable investmentSafe and reliable investment
DisadvantagesDisadvantagesStolen innovationStolen innovation
No control of the marketNo control of the market
Only way to improve is cost reductionOnly way to improve is cost reduction
SmallSmall
Returns not too impressiveReturns not too impressive
FarewellFarewell
Live long and prosper.Live long and prosper.