Chapter 8
Profit Maximization and
Competitive Supply
利润最大化与竞争性供给
Topics to be Discussed

Perfectly Competitive Markets
完全竞争市场



Profit Maximization 利润最大化
Marginal Revenue, Marginal Cost, and Profit
Maximization 边际收益、边际成本和利润最大化
Choosing Output in the Short-Run 选择短期产量
Chapter 1
2
Topics to be Discussed


The Competitive Firm’s Short-Run Supply Curve 竞
争性厂商短期供给曲线
Short-Run Market Supply
短期市场供给曲线

Choosing Output in the Long-Run
选择长期产量

The Industry’s Long-Run Supply Curve
厂商的长期供给曲线
Chapter 1
3
Perfectly Competitive Markets

Characteristics of Perfectly Competitive
Markets 完全竞争市场的特征
1) Price taking 既定价格承担
2) Product homogeneity 产品同质
3) Free entry and exit 自由进入和退出
市场
Chapter 1
4

Price Taking 既定价格承担

The individual firm sells a very small share of
the total market output and, therefore, cannot
influence market price.
每个厂商出售的产量占行业产量的比重足够小以
至于个别厂商的决策对市场价格不产生影响

The individual consumer buys too small a share
of industry output to have any impact on
market price.
每个消费者的购买量占行业产量的比重业足够小
以至于个别消费者对市场价格没有影响
Chapter 1
5

Product Homogeneity 产品同质

The products of all firms are perfect
substitutes.
不同厂家生产的产品是完全替代品

Examples

Agricultural products, oil, copper, iron,
lumber
农产品；原油；铜；铁；木材
Chapter 1
6
Perfectly Competitive Markets

Free Entry and Exit 自由进入和退出
市场

Buyers can easily switch from one
supplier to another.
购买者可以自如地从一个供应商转向另
外一个供应商

Suppliers can easily enter or exit a
market.
供应商可以自如地进入或者退出市场
Chapter 1
7
Perfectly Competitive Markets

Discussion Questions

What are some barriers to entry and exit?
阻碍企业自由进出市场的障碍是什么？

Are all markets competitive?
所有的市场都是竞争性市场吗？

When is a market highly competitive?
什么情况下市场是高度竞争的？
Chapter 1
8
Profit Maximization

Do firms maximize profits? 利润最大化？

Possibility of other objectives
其他目标

Revenue maximization 收入最大化

Dividend maximization 红利最大化

Short-run profit maximization 短期利润最大化
Chapter 1
9
Profit Maximization

Do firms maximize profits?

Implications of non-profit objective
非利润最大化目标的意义

Over the long-run investors would not support the
company
长期而言，投资者不会支持其行为

Without profits, survival unlikely
没有利润，公司本身也无法生存
Chapter 1
10
Profit Maximization

Do firms maximize profits?

Long-run profit maximization is valid and
does not exclude the possibility of
altruistic behavior.
长期利润最大化是合理的假说；当然不能
排斥利它行为存在的可能性
Chapter 1
11
Marginal Revenue, Marginal Cost,
and Profit Maximization

Determining the profit maximizing level of
output 决定利润最大化的产出水平
Profit (  ) = Total Revenue - Total Cost
利润＝总收入－总成本
 Total Revenue (R) = Pq
 Total Cost (C) = Cq
 Therefore:

 (q)  R(q)  C (q)
Chapter 1
12
Profit Maximization in the Short Run
Total Revenue 总收入
Cost,
Revenue,
Profit
($s per year)
R(q)
Slope of R(q) = MR
斜率＝边际收益
边际收益递减
0
Output (units per year)
Chapter 1
13
Profit Maximization in the Short Run
C(q)
Cost,
Revenue,
Profit
$ (per year)
Total Cost
总成本
Slope of C(q) = MC
边际成本
Why is cost positive when q is zero?
短期内存在固定成本，因此产量为零，成本不为零
0
Output (units per year)
Chapter 1
14
Marginal Revenue, Marginal Cost,
and Profit Maximization

Marginal revenue is the additional revenue
from producing one more unit of output.
边际收益是产量增加一个单位时收入的增加量

Marginal cost is the additional cost from
producing one more unit of output.
边际成本时产量增加一个单位时成本的增加量
Chapter 1
15
Marginal Revenue, Marginal Cost,
and Profit Maximization

Comparing R(q) and
C(q)

Cost,
Revenue,
Profit
($s per year)
C(q)
Output levels: 0- q0:

A
R(q)
C(q)> R(q)


FC + VC > R(q)

MR ＜ MC

B
Negative profit
Indicates higher
profit at higher
output
0
q0
q*
 (q)
Output (units per year)
Chapter 1
16
Marginal Revenue, Marginal Cost,
and Profit Maximization

Comparing R(q) and
C(q)

Cost,
Revenue,
Profit
$ (per year)
C(q)
Question: Why is profit
negative when output is
zero?
A
R(q)
B
收入不足以抵消固
定成本和可变成本
0
q0
q*
 (q)
Output (units per year)
Chapter 1
17
Marginal Revenue, Marginal Cost,
and Profit Maximization

Comparing R(q) and C(q)
 Output levels: q0 - q*

R(q)> C(q)

MR > MC


Cost,
Revenue,
Profit
$ (per year)
C(q)
A
Indicates higher
profit at higher
output
Profit is increasing
R(q)
B
0
q0
q*
 (q)
Output (units per year)
Chapter 1
18
Marginal Revenue, Marginal Cost,
and Profit Maximization

Comparing R(q) and
C(q)

Cost,
Revenue,
Profit
$ (per year)
C(q)
Output level: q*

A
R(q)
R(q)= C(q)

MR = MC

Profit is maximized
B
0
q0
q*
 (q)
Output (units per year)
Chapter 1
19
Marginal Revenue, Marginal Cost,
and Profit Maximization

Question

Why is profit reduced
when producing more
or less than q*?
Cost,
Revenue,
Profit
$ (per year)
C(q)
A
R(q)
B
此处边际收益等于边际
成本，之前边际收益大
于边际成本；之后边际
收益小于边际成本
0
q0
q*
 (q)
Output (units per year)
Chapter 1
20
Marginal Revenue, Marginal Cost,
and Profit Maximization

Comparing R(q) and C(q)
 Output levels beyond q*:

R(q)> C(q)

MC > MR

Cost,
Revenue,
Profit
$ (per year)
C(q)
A
R(q)
B
Profit is decreasing
0
q0
q*
 (q)
Output (units per year)
Chapter 1
21
Marginal Revenue, Marginal Cost,
and Profit Maximization

Therefore, it can
be said:
Cost,
Revenue,
Profit
$ (per year)
C(q)
A

Profits are
maximized
when MC = MR.
R(q)
B
0
q0
q*
 (q)
Output (units per year)
Chapter 1
22
Marginal Revenue, Marginal Cost,
and Profit Maximization
  R-C
R
MR 
q
C
MC 
q
Chapter 1
23
Marginal Revenue, Marginal Cost,
and Profit Maximization
Profits are maximized w hen:
 R C


 0 or
q q q
MR  MC  0 so that
MR(q)  MC(q)
Chapter 1
24
Marginal Revenue, Marginal Cost,
and Profit Maximization

The Competitive Firm 竞争性厂商

Price taker 价格接受者

Market output (Q) and firm output (q)

Market demand (D) and firm demand (d)

R(q) is a straight line
收益曲线是一条直线
Chapter 1
25
Demand and Marginal Revenue Faced
by a Competitive Firm
Price
$ per
bushel
Price
$ per
bushel
Firm
厂商
$4
d
Industry
行业
$4
D
100
200
Output
(bushels)
100
Output
(millions
of bushels)
Marginal Revenue, Marginal Cost,
and Profit Maximization

The Competitive Firm

The competitive firm’s demand 竞争性厂商的需求

Individual producer sells all units for $4 regardless of
the producer’s level of output.
个别生产者只能在固定价格销售产品，与自身的产出水
平无关

If the producer tries to raise price, sales are zero.
如果生产者试图抬高价格，则销售量为零
Chapter 1
27
Marginal Revenue, Marginal Cost,
and Profit Maximization

The Competitive Firm

The competitive firm’s demand

If the producers tries to lower price he cannot
increase sales
生产者降价无助于提高销售产量

P = MR = AR
产品价格=边际收益＝平均收益
Chapter 1
28
Marginal Revenue, Marginal Cost,
and Profit Maximization

The Competitive Firm

Profit Maximization
利润最大化的条件－所选择的产量水平需满足：

MC(q) = MR = P
边际成本＝边际收益＝产品价格
Chapter 1
29
Choosing Output in the Short Run
选择短期产出

We will combine production and cost
analysis with demand to determine output
and profitability.
我们必须把生产分析与成本分析结合，以
确定产出水平和利润水平
Chapter 1
30
A Competitive Firm Making a Positive Profit
竞争性厂商的短期利润最大化
MC
Price
60
($ per
unit)
50
40
Lost profit for
q q < q*
A
D
Lost profit for
q2 > q*
ATC
C
B
AVC
30
At q*: MR = MC
and P > ATC
q1 : MR > MC and
q2: MC > MR20
and
q0: MC = MR but
MC falling
10
0
AR=MR=P
  (P - AC) x q*
or ABCD
1
q0
2
3
4
5
6
7
q1
Chapter 1
8
q*
9
q2
10
11
Output
31
A Competitive Firm Incurring Losses
竞争性厂商短期内面临亏损
MC
Price
($ per
unit)
ATC
B
C
D
A
At q*: MR = MC
and P < ATC
Losses = P- AC) x q*
or ABCD
P = MR
AVC
F
E
q*
Chapter 1
Would this producer
continue to produce
with a loss?
Output
32
Choosing Output in the Short Run

Summary of Production Decisions

Profit is maximized when MC = MR
当边际成本等于边际收益（价格）时，利润
最大化

If P > ATC the firm is making profits.
当价格高于平均总成本时，厂商可以盈利
Chapter 1
33
Choosing Output in the Short Run




If AVC < P < ATC the firm should produce at a
loss.
当价格高于平均可变成本但低于平均总成本时，
厂商应该在亏损情况下继续生产
If P < AVC < ATC the firm should shut-down.
当价格低于平均可变成本和平均固定成本时，厂
商应停止生产
Chapter 1
34
A Competitive Firm’s Short-Run Supply Curve
竞争性厂商的短期供给曲线
Price
($ per
unit)
厂商选择的产出水平是边际收益与边际成本相等之处
前提是价格需高于平均可变成本
MC
P2
ATC
P1
AVC
What happens
if P < AVC?
P = AVC
q1
Chapter 1
q2 Output
35
A Competitive Firm’s
Short-Run Supply Curve

Observations:
P = MR
 MR = MC
 P = MC


Supply is the amount of output for
every possible price. Therefore:
If P = P1, then q = q1
 If P = P2, then q = q2

Chapter 1
36
A Competitive Firm’s
Short-Run Supply Curve
Price
($ per
unit)
S = MC above AVC
厂商供给曲线是位于平均可变
成本最低点以上的边际成本曲线
MC
P2
ATC
P1
AVC
P = AVC
Shut-down
q1
Chapter 1
q2
Output
37
A Competitive Firm’s
Short-Run Supply Curve
竞争性厂商的短期供给曲线
 Observations:
Supply is upward sloping
供给曲线向右上倾斜
 Higher price compensates the firm for higher
cost of additional output and increases total
profit because it applies to all units.
市场价格上升，企业增加产量，提高价格使扩
大生产有利可图；同样增加厂商的总利润，因
为这一价格适用于厂商生产的全部产量

Chapter 1
38
A Competitive Firm’s
Short-Run Supply Curve

Firm’s Response to an Input Price
Change
厂商对投入品价格变化的应对

When the price of a firm’s product changes,
the firm changes its output level, so that
the marginal cost of production remains
equal to the price.
当投入品价格变化，厂商会改变其产出水平
直到产出的边际成本与价格相等
Chapter 1
39
The Response of a Firm to
a Change in Input Price
Price
($ per
unit)
MC2
Input cost increases
and MC shifts to MC2
and q falls to q2.
Savings to the firm
from reducing output
MC1
$5
q2
Chapter 1
q1
Output
40
The Short-Run Production
of Petroleum Products
Cost
($ per
barrel) 27
The MC of producing
a mix of petroleum products
from crude oil increases
sharply at several levels
of output as the refinery
shifts from one processing
unit to another.
SMC
26
How much would
be produced if
P = $23?
P = $24-$25?
25
24
23
8,000
9,000
10,000
Chapter 1
11,000
Output
(barrels/day)
41
The Short-Run Production
of Petroleum Products

Stepped SMC indicates a different production
(cost) process at various capacity levels.
逐步上升的短期边际成本曲线说明在不同的产量
阶段，成本构成不同

Observation:

With a stepped MC function, small changes in price
may not trigger a change in output.
对于阶段性上升的边际成本，价格的小幅度变
化不一定会引发产出的变化
Chapter 1
42
The Short-Run Market Supply Curve
短期市场供给曲线

The short-run market supply curve
shows the amount of output that the
industry will produce in the short-run
for every possible price.
短期市场供给曲线表示在每一可能的价
格下行业在短期中生产的产量

Consider, for simplicity, a competitive
market with three firms:
Chapter 1
43
Industry Supply in the Short Run
MC1 MC2
$ per
unit
The short-run
industry supply curve
is the horizontal
summation of the supply
curves of the firms.
MC3
S
P3
P2
P1
0
Question: If increasing
output raises input
costs, what impact
would it have on
market supply?
2
4 5
7 8
10
Chapter 1
15
Quantity 21
44
The Short-Run Market Supply Curve

Elasticity of Market Supply
Es  (Q / Q) /(P / P)
Chapter 1
45
The Short-Run Market Supply Curve




Perfectly inelastic short-run supply arises
when the industry’s plant and equipment are
so fully utilized that new plants must be built
to achieve greater output.
供给完全无弹性： 行业的厂房设备完全被利用；
必须建立新厂房提高产量（耗时较长）
Perfectly elastic short-run supply arises when
marginal costs are constant.
供给完全弹性：边际成本为常数
Chapter 1
46
The Short-Run Market Supply Curve

Producer Surplus in the Short Run
短期生产者剩余


Firms earn a surplus on all but the last unit of
output.
厂商能够获得除最后一单位外所有产量对应的剩余
The producer surplus is the sum over all units
produced of the difference between the market
price of the good and the marginal cost of
production.
生产者剩余是所有生产单位边际生产成本和商品市
场价格之间差额的总和
Chapter 1
47
Producer Surplus for a Firm
Price
($ per
unit of
output)
At q* MC = MR.
Between 0 and q ,
MR > MC for all units.
Producer
Surplus
MC
AVC
B
A
D
0
P
C
q*
Alternatively, VC is the
sum of MC or ODCq* .
R is P x q* or OABq*.
Producer surplus =
R - VC or ABCD.
Output
Chapter 1
48
The Short-Run Market Supply Curve

Producer Surplus in the Short-Run
生产者剩余＝PS＝R－VC
Profit    R - VC - FC
Chapter 1
49
The Short-Run Market Supply Curve

Observation

Short-run with positive fixed cost 短期内固
定成本为正时
PS  
Chapter 1
50
Producer Surplus for a Market
Price
($ per
unit of
output)
S
Market producer surplus is
the difference between P*
and S from 0 to Q*.
P*
Producer
Surplus
D
Q*
Chapter 1
Output
51
Choosing Output in the Long Run
长期产量选择



In the long run, a firm can alter all its
inputs, including the size of the plant.
长期，厂商可以改变所有投入品，包括
调整工厂规模
We assume free entry and free exit.
假定自由进入和退出市场
Chapter 1
52
Output Choice in the Long Run
Price
($ per
unit of
output)
In the long run, the plant size will be
increased and output increased to q3.
Long-run profit, EFGD > short run
profit ABCD.
LMC
LAC
SMC
D
SAC
A
E
$40
C
G
P = MR
B
F
$30
In the short run, the
firm is faced with fixed
inputs. P = $40 > ATC.
Profit is equal to ABCD.
q1
q2
Chapter 1
q3
Output
53
Output Choice in the Long Run
Price
($ per
unit of
output)
Question: Is the producer making
a profit after increased output
lowers the price to $30?
LMC
LAC
SMC
D
SAC
A
E
$40
C
G
P = MR
B
F
$30
q1
q2
Chapter 1
q3
Output
54
Choosing Output in the Long Run

Accounting Profit & Economic Profit
会计利润和经济利润
( )
 Accounting profit
 Economic profit
 wl
( )
= R - wL
= R = wL - rK
= labor cost
 rk =
opportunity cost of capital
Chapter 1
55
Choosing Output in the Long Run
Long-Run Competitive Equilibrium

Zero-Profit



If R > wL + rk, economic profits are positive
If R = wL + rk, zero economic profits, but the
firms is earning a normal rate of return; indicating
the industry is competitive
零经济利润说明厂商的经营依然有一定的收益，只
是所在市场为竞争性市场。竞争性市场的长期经济
利润为零
If R < wl + rk, consider going out of business
Chapter 1
56
Choosing Output in the Long Run
Long-Run Competitive Equilibrium

Entry and Exit




The long-run response to short-run profits is to increase
output and profits.
对于短期利润，长期反映是增加产出和利润
Profits will attract other producers.
利润会吸引其他生产者进入该行业
More producers increase industry supply which lowers
the market price.
更多的生产者提高了行业供给从而使市场均衡价格下降
Chapter 1
57
Long-Run Competitive Equilibrium
•Profit attracts firms
•Supply increases until profit = 0
$ per
unit of
output
$ per
unit of
output
Firm
Industry
S1
LMC
$40
LAC
$30
P1
S2
P2
D
q2
Output
Q1
Q2
Output
Choosing Output in the Long Run

Long-Run Competitive Equilibrium
长期竞争性均衡
1) MC = MR 边际成本等于边际收益
2) P = LAC 价格等于长期平均成本


No incentive to leave or enter
Profit = 0 没有哪个厂商有动力进入或退出该
行业
Chapter 1
3) Equilibrium Market
Price
59
Choosing Output in the Long Run

Questions
1) Explain the market adjustment when
P < LAC and firms have identical
costs.
2) Explain the market adjustment when
firms have different costs.
3) What is the opportunity cost of land?
Chapter 1
60
Choosing Output in the Long Run

Economic Rent

Economic rent is the difference between
what firms are willing to pay for an input
less the minimum amount necessary to
obtain it.
经济租是厂商对某生产要素的支付超出该生
产要素目前所得报酬的部分
Chapter 1
61
Choosing Output in the Long Run

An Example

Two firms A & B，Both own their land

A is located on a river which lowers A’s
shipping cost by $10,000 compared to B.
A位于河边，从而使它的运输费用比位于内陆
的工厂B低10，000美元

The demand for A’s river location will increase
the price of A’s land to $10,000
对于A位置的需求会使A位置的土地上涨到10，
Chapter 1
000美元
62
Choosing Output in the Long Run

An Example

Economic rent = $10,000

$10,000 - zero cost for the land

Economic rent increases

Economic profit of A = 0
Chapter 1
63
Firms Earn Zero Profit in
Long-Run Equilibrium
Ticket
Price
LMC
LAC
A baseball team
in a moderate-sized city
sells enough
tickets so that price
is equal to marginal
and average cost
(profit = 0).
$7
1.0
Chapter 1
Season Tickets
Sales (millions)
64
Firms Earn Zero Profit in
Long-Run Equilibrium
Ticket
Price
Economic Rent
LMC
LAC
$10
$7
A team with the same
cost in a larger city
sells tickets for $10.
1.3
Chapter 1
Season Tickets
Sales (millions)
65
Firms Earn Zero Profit in
Long-Run Equilibrium

With a fixed input such as a unique location,
the difference between the cost of production
(LAC = 7) and price ($10) is the value or
opportunity cost of the input (location) and
represents the economic rent from the input.
对于某种固定投入如独特的地理位置，成本与
价格之间的差异是投入品的机会成本代表了投
入品的经济租
Chapter 1
66
Firms Earn Zero Profit in
Long-Run Equilibrium

If the opportunity cost of the input
(rent) is not taken into consideration it
may appear that economic profits exist
in the long-run.
不考虑经济租，经济利润表现为正，如
考虑，则为零
Chapter 1
67
The Industry’s Long-Run Supply Curve
行业的长期供给曲线

The shape of the long-run supply curve
depends on the extent to which
changes in industry output affect the
prices the firms must pay for inputs.
行业的长期供给曲线取决于行业产量的
增加与减少在多大程度上影响厂商的投
入品的价格
Chapter 1
68
The Industry’s Long-Run Supply Curve

To determine long-run supply, we assume:
重要假定




All firms have access to the available production
technology.
所有厂商都可得到现有的生产技术
Output is increased by using more inputs, not
by invention.
产量的增加是由于更多的投入而不是由于发明而
Chapter 1
69
增加
The Industry’s Long-Run Supply Curve

To determine long-run supply, we
assume:

The market for inputs does not change
with expansions and contractions of the
industry.
生产要素投入品的市场不会随着行业的扩张
和收缩而改变
Chapter 1
70
Long-Run Supply in a Constant-Cost Industry
成本不变行业的长期供给
$ per
unit of
output
Economic profits attract new
firms. Supply increases to S2 and
the market returns to long-run
equilibrium.
MC
$ per
unit of
output
Q1 increase to Q2.
Long-run supply = SL = LRAC.
Change in output has no impact on
input cost.
S1
AC
P2
S2
C
P2
A
P1
B
SL
P1
D1
q1 q2
Output
Q1
Q2
D2
Output
Long-Run Supply in a
Constant-Cost Industry

In a constant-cost industry, long-run
supply is a horizontal line at a price that
is equal to the minimum average cost of
production.
在成本不变的行业，长期供给曲线是一
条水平线，其所在价格水平为该行业最
低平均生产成本
Chapter 1
72
Long-Run Supply in an
Increasing-Cost Industry成本递增行业
$ per
unit of
output
SMC2
LAC2
$ per
unit of
output
Due to the increase
in input prices, long-run
equilibrium occurs at
a higher price.
S1 S2
LAC1
P2
P2
P3
P3
P1
P1
B
A
D1
q1
SL
SMC1
q2
Output
Q1
Q2 Q3
D1
Output
Long-Run Supply in a
Increasing-Cost Industry

In a increasing-cost industry, long-run
supply curve is upward sloping.
成本增加的行业，其行业长期供给曲线
向上倾斜
Chapter 1
74
The Industry’s
Long-Run Supply Curve

Questions
1) Explain how decreasing-cost is
possible.
2) Illustrate a decreasing cost industry.
3) What is the slope of the SL in a
decreasing-cost industry?
Chapter 1
75
Long-Run Supply in an
Decreasing-Cost Industry
$ per
unit of
output
Due to the decrease
in input prices, long-run
equilibrium occurs at
a lower price.
$ per
unit of
output
S1
S2
SMC1
SMC2 LAC1
P2
P2
LAC2
P1
P1
P3
P3
A
B
SL
D1
q1
q2
Output
Q1 Q2
Q3
D2
Output
Long-Run Supply in a
Increasing-Cost Industry

In a decreasing-cost industry, long-run
supply curve is downward sloping.
Chapter 1
77
The Industry’s
Long-Run Supply Curve

The Effects of a Tax
In an earlier chapter we studied how firms
respond to taxes on an input.
 Now, we will consider how a firm responds
to a tax on its output.

Chapter 1
78
Effect of an Output Tax on a Competitive
Firm’s Output
Price
($ per
unit of
output)
MC2 = MC1 + tax
An output tax
raises the firm’s
marginal cost by the
amount of the tax.
MC1
The firm will
reduce output to
the point at which
the marginal cost
plus the tax equals
the price.
t
P1
AVC2
AVC1
q2
Chapter 1
q1
Output
79
Effect of an Output
Tax on Industry Output
Price
($ per
unit of
output)
S2 = S1 + t
S1
t
P2
Tax shifts S1 to S2 and
output falls to Q2. Price
increases to P2.
P1
D
Q2
Q1
Chapter 1
Output
80
The Industry’s
Long-Run Supply Curve

Long-Run Elasticity of Supply
1) Constant-cost industry
 Long-run
supply is horizontal
 Small
increase in price will induce an extremely
large output increase
Chapter 1
81
The Industry’s
Long-Run Supply Curve

Long-Run Elasticity of Supply
1) Constant-cost industry

Long-run supply elasticity is infinitely large

Inputs would be readily available
Chapter 1
82
The Industry’s
Long-Run Supply Curve

Long-Run Elasticity of Supply
2) Increasing-cost industry



Long-run supply is upward-sloping and
elasticity is positive
The slope (elasticity) will depend on the rate of
increase in input cost
Long-run elasticity will generally be greater
than short-run elasticity of supply
Chapter 1
83
The Industry’s
Long-Run Supply Curve

Question:

Describe the long-run elasticity of supply in
a decreasing -cost industry.
Chapter 1
84
The Long-Run Supply of Housing

Scenario 1: Owner-occupied housing
Suburban or rural areas
 National market for inputs

Chapter 1
85
The Long-Run Supply of Housing

Questions
Is this an increasing or a constant-cost
industry?
 What would you predict about the elasticity
of supply?

Chapter 1
86
The Long-Run Supply of Housing

Scenario 2: Rental property
Zoning restrictions apply
 Urban location
 High-rise construction cost

Chapter 1
87
The Long-Run Supply of Housing

Questions
Is this an increasing or a constant-cost
industry?
 What would you predict about the elasticity
of supply?

Chapter 1
88
Summary


The managers of firms can operate in
accordance with a complex set of
objectives and under various constraints.
A competitive market makes its output
choice under the assumption that the
demand for its own output is horizontal.
Chapter 1
89
Summary


In the short run, a competitive firm
maximizes its profit by choosing an
output at which price is equal to (shortrun) marginal cost.
The short-run market supply curve is
the horizontal summation of the supply
curves of the firms in an industry.
Chapter 1
90
Summary


The producer surplus for a firm is the
difference between revenue of a firm
and the minimum cost that would be
necessary to produce the profitmaximizing output.
Economic rent is the payment for a
scarce resource of production less the
minimum amount necessary to hire that
factor.
Chapter 1
91
Summary


In the long-run, profit-maximizing
competitive firms choose the output at
which price is equal to long-run
marginal cost.
The long-run supply curve for a firm
can be horizontal, upward sloping, or
downward sloping.
Chapter 1
92
End of Chapter 8
Profit Maximization
and Competitive
Supply