Perfectly Competitive Market参考.ppt

Fixed Inputs and Economic Rent Think of a firm that needs an operating license -- the license is a fixed input that is rented but not owned by the firm. If the firm makes a positive economic profit then another firm can offer the license owner a higher price for it. In this way, all firms’ economic profits are competed away, to zero. * Fixed Inputs and Economic Rent So in the long-run equilibrium, each firm makes a zero economic profit and each firm’s fixed cost is its payment for its operating license. * Fixed Inputs and Economic Rent y $/output unit AC(y) AVC(y) MC(y) y* pe The firm’s economicprofit is zero. * Fixed Inputs and Economic Rent y $/output unit AC(y) AVC(y) MC(y) y* pe F The firm’s economicprofit is zero. F is the payment to the owner of the fixed input (the license). * Fixed Inputs and Economic Rent Economic rent is the payment for an input that is in excess of the minimum payment required to have that input supplied. Each license essentially costs zero to supply, so the long-run economic rent paid to the license owner is the firm’s long-run fixed cost. * Fixed Inputs and Economic Rent y $/output unit AC(y) AVC(y) MC(y) y* pe F The firm’s economicprofit is zero. F is the payment to the owner of the fixedinput (the license); F = economic rent. * Important Points to Note: In order to maximize profits, the firm should choose to produce that output level for which the marginal revenue is equal to the marginal cost * Important Points to Note: If a firm is a price taker, its output decisions do not affect the price of its output marginal revenue is equal to price * Important Points to Note: The supply curve for a price-taking, profit-maximizing firm is given by the positively sloped portion of its marginal cost curve above the point of minimum average variable cost (AVC) if price falls below minimum AVC, the firm’s profit-maximizing choice is to shut down and produce nothing * Important Points to Note: Short-run changes in market price result in chan