Chapter 14: Perfect Competition - Part 1

Characteristics of perfectly competitive markets 0.31
Sellers face a perfectly elastic demand for their product 3:31
The revenue of a competitive firm 7:06
- marginal revenue 11:23
- P = MR for a competitive firm 12:57
How a competitive firm maximizes profit 15:23
- Profit is maximized when marginal revenue equals marginal cost 18:05
How a competitive firm responds to a change in market price 30:11
The marginal cost curve is the competitive firm's supply curve 31:47
The firm's short-run decision to shut- down 33:55
- The competitive firm's short-run supply curve 45:08
Sunk costs 47:01
The long-run decision to exit or enter a market 52:20
- The competitive firm's long-run supply curve 54:11
The perfectly competitive firm's profit-maximization strategy 55:51
How to show the profit of a competitive firm 58:30

[@leratogqabaza3368]

Teaching is your calling! I have no Economics background and I can follow your class with so much ease. Thank you

[@nikhilfci]

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[@DrAzevedoEcon]

Happy to help! Thanks for watching.

[@loaiaminalyousfi1995]

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[@DrAzevedoEcon]

You're welcome! Glad to help!

[@extraordinary___]

My lecture always speaks 0 volume when he tell the whole of story but you are man, you are really man doing benefical something for all studens.There is micro exam tomorrow and keep watching on videos. I just can say Thank you😊

[@user-iz8nq5tb6f]

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[@DrAzevedoEcon]

Thanks for watching! I appreciate the kind words.

[@youareunique4696]

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[@DrAzevedoEcon]

Thank you! Thanks for watching!

[@saacidomar8752]

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[@bennettkwan2829]

🎯 Key Takeaways for quick navigation: 00:00 🏭 In perfectly competitive markets, firms make decisions on quantity production to maximize profit by comparing marginal revenue and marginal cost. 01:58 💼 Perfectly competitive markets have three key characteristics: many buyers and sellers, identical goods, and no barriers to entry. 06:48 🌽 Examples of perfectly competitive markets include the stock market, commodity markets (e.g., corn and soybeans), and larger gasoline markets. 13:13 📊 To maximize profit, any firm, not just perfectly competitive ones, should produce where marginal revenue equals marginal cost. 15:34 💰 Profit is not maximized by producing more; it's maximized when marginal revenue equals marginal cost, and producing more or less leads to lower profits. 22:15 📈 Graphically, profit is maximized where the marginal revenue curve intersects the marginal cost curve for a firm. 25:55 📊 A competitive firm maximizes profit by producing the quantity where marginal revenue equals marginal cost, known as the profit-maximizing quantity (Q*). 27:22 💡 To maximize profit, a firm should not produce quantities to the left (lower than Q*) or right (higher than Q*) of the profit-maximizing quantity. 30:14 📉 Market price changes affect the quantity a competitive firm produces. Lower prices lead to lower quantities, and higher prices lead to higher quantities. 36:39 🛠️ A firm shuts down in the short run if total revenue is less than variable costs but still pays fixed costs. 43:31 🚪 The short-run shutdown condition is that a firm will shut down if the price falls below the average variable cost. 47:08 💸 Sunk costs are costs that are already committed and cannot be recovered; they should not influence decision-making. 51:56 📈 Fixed costs do not impact a firm's supply curve; they are ignored when making production decisions. 52:33 🚪 Firms decide to enter or exit a market based on their ability to cover costs and make a profit in the long run. 52:49 📈 Entrepreneurs enter markets with positive profits, avoiding markets with losses. 53:01 📊 Firms exit markets when total revenue is less than total cost. 53:44 🏭 Firms exit when price is less than average total cost. 54:09 📉 The long-run supply curve for a competitive firm is its marginal cost curve above the average total cost curve. 56:44 💰 A competitive firm maximizes profit by producing where price equals marginal cost. 58:07 📊 In the short-run, a firm shuts down if price falls below the average variable cost curve. 58:34 🔄 In the long-run, a firm exits the market if price falls below the average total cost curve. 01:00:08 💲 Profit is equal to (Price - Average Total Cost) multiplied by Quantity. 01:01:16 📊 A firm earns a positive profit when Price > Average Total Cost. 01:04:27 📉 A firm incurs negative profit (loss) when Price < Average Total Cost. 01:05:52 📈 Profit is zero when Price = Average Total Cost. Made with HARPA AI

[@JD-ir8cb]

Thank you for presenting this in a digestible manner. Much better than my text book

[@RahulSinghChhonkar]

One of the best economics teacher out there , explaining complex concepts in very simplified manner . the real life examples are too good . The only place from where i have been studying . You are truly a great teacher .🙏🔥

[@DrAzevedoEcon]

I appreciate the kind words! I'm happy to be able to help!

[@lindsaymavuso]

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[@aarti._.pawar.]

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[@CaiusFosu-Gyeabour]

I'm absolutely overwhelmed by your explanations sir. All i can say is you're the best!. God bless.

[@heavenlyhealingmeditations]

Greetings from Austria. thank you so very much for the breakdown and explanation.

[@DrAzevedoEcon]

Greetings! You're welcome!

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[@hc321neo]

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[@DrAzevedoEcon]

You're welcome! I'm glad they are helpful.

[@DeveshGaur-ek4ic]

All doubts cleared Love from india ♥️🔥

[@areejd3760]

Thanks a lot that was amazing

[@bbeeyangli]

I find that I enjoy this journey, this course is great ! Regarding the company model, I think standard economics in universities should include digital products, such as digital games, software, etc. Their marginal cost is almost zero. They have been around for decades. Unlike physics, which leads application, economics lags behind application. Standard economics should include discussions on new economic phenomena, such as live streaming rewards and live streaming sales.

[@flaviot5226]

Thank you Dr, Azevedo best lessons

[@ObMsiska-ku2xv]

This video is mind opener

[@GirinSofia]

Everything is explained so well!

[@DrAzevedoEcon]

Thanks for watching!

[@selinbilgen1496]

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[@TheVegeta007]

Couldn't be more thankful, sir.

[@DrAzevedoEcon]

Glad to help!

[@user-hl6cd5vu1m]

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[@DrAzevedoEcon]

You're welcome! Glad to help!

[@vidhiagarwal6010]

Sir your videos are really great and so easy to understand! Thanks a lot!

[@DrAzevedoEcon]

You're welcome! Glad to help!

[@josephstalin1424]

Watching this 1 day before my class test. Love from India and please wish me luck. :)

[@DrAzevedoEcon]

Good luck on the exam!

[@heider9779]

Your videos have been reallyyy helpful. Tysm

[@DrAzevedoEcon]

Glad to help!

[@JKerpz]

awesome videos very helpful. whatever the hell you use for a white board is trippy as hell

[@aoTrangd-ll9qk]

Tkss u so much, tks for ur amazing explanation, ur contribution to a long and useful vid, tks kiu from my bottom of my heart 1 more time. From Vietnam

[@DrAzevedoEcon]

It makes me happy to hear that the videos are helpful!

[@ushalakhlan6191]

Nice explanation

[@muhammadazkas2738]

Anyway sir, for the maximazitaion profit example. If the quantitiy at level 4 and 5 give the same profit which is 7, why we produce at 5 quantity that has MC bigger than MC at level 4? i still dont get it, thank you sir. it would be nice if u can help me to solve my confusion

[@elanurerdogan8586]

thank youuuu

[@DrAzevedoEcon]

You're welcome!

[@viditbhardwaj8726]

Thank you Prof.

[@DrAzevedoEcon]

You're welcome! Thanks for watching

[@smartagbakwuru5840]

Oh, why did I have to see this late. Anyways, it's better late than never. That's a good teacher there. You will make great students.

[@DrAzevedoEcon]

I wish you had found the videos sooner!

[@trungphan2914]

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[@jameswu9715]

Thank you !

[@madoviavirivolomo8010]

Question: Assuming that the firm is earning a profit, What if the firm reduces output production to the point where ATC=MC. What will be the effect on total revenue? Will it reduce or decrease?

[@abujafashiondesigner7650]

Thank u so much, but i dont understand how you got the figures in tge TC column.

[@raghavganeshram447]

you must have a lot of trouble saying your welcome to all the comments saying thank you so much for this immaculate video. So here is another one.

[@DrAzevedoEcon]

Ha! It takes a little while, but it makes me happy to hear that the videos are helping people. You're welcome ;)

[@tobiass.8770]

Greeting from Sweden! A quick question on the example of the gallons of milk. Why would a firm aim to recieve 5 gallons of milk whilst 4 gallons give the exact same output in TR - TC and MR - MC give 1 extra dollar, wouldn't they strive for that extra dollar? I appreciate your response in advance, such great tutoring!

[@DrAzevedoEcon]

Don't get hung up on this particular numerical example. You are correct that in this example, both 4 and 5 units of output would result in the same amount of profit. However, that's because we are thinking about discrete units of the good (integers). The important point is to notice that MR = MC at the point where the firm is maximizing its profit. Once we start drawing the MR and MC curves, we are assuming that the firm can produce infinitely-divisible quantities, which means there will be exactly one place where MR = MC, which is the place where the MR and MC curves intersect. I hope that helps!

[@sistrio8930]

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[@muhammadazkas2738]

Sir, may i ask u something? if the demand are perfectly elastic, so the price at any quantity level is same, then when there is a shortage on the market, the supply curve shift to the left, if demand doesnt change, doesn't it mean , the price wont change? anyway, sorry if my english is bad, im trying my best to communicate my thought, thank you sir.

[@DrAzevedoEcon]

You are correct that if the market demand curve were perfectly elastic, a shift in supply would not cause a change in price. Remember that when we are talking about a perfectly elastic demand curve in this video, we are not saying that the market demand curve is perfectly elastic. We are saying that each firm faces a perfectly elastic demand curve. That is a very different thing. None of these firms face the market demand curve because none of them sell to all of the buyers in the market.

[@Dailypodcast23]

Thank uu

[@DrAzevedoEcon]

You're welcome!

[@user-zu8hj8rx5s]

Watching this 10 hrs before my Principles of Microeconomics final Quiz for this semester...🙏💯😅

[@DrAzevedoEcon]

Good luck with the final!

[@user-zu8hj8rx5s]

@@DrAzevedoEcon thank you sir your videos has really helped me throughout this semester 💯

[@Eco-zaki]

How did you write this whole things in that small piece of paper?

[@DrAzevedoEcon]

There are actually several sheets of paper in the small stack I'm holding. I also don't have notes for everything I end up talking about. I've been teaching this long enough that I could almost do it without my notes.....almost.

[@user-gr4ux9up4m]

🥲 Where MC cut ATC that point is known as efficiency scale, will it be different then the point where MC cut MR? Please explain

[@DrAzevedoEcon]

In long-run equilibrium, they will all be the same point. In the short run, the MR curve can intersect the MC curve at a point other than the efficient scale. However, in the long-run, entry/exit will push price back to where the firms earn zero profit. This means that in the long-run the MR and MC curves will intersect at the efficient scale.

[@user-gr4ux9up4m]

@@DrAzevedoEcon Thankyou soo much 👍

[@Yoyo-rq5ih]

sir, i don't see the latter part of chapter 13. Where can I find it?

[@DrAzevedoEcon]

I think you mean chapter 14, right? kzbin.info/www/bejne/kGSumGinp9J4pZYsi=-72h74NvlWHNqn15

[@mohamedabdalazim2472]

Why you have not continued

[@DrAzevedoEcon]

Busy semester....I'm hoping to record more soon.

[@KamrulHasan-kn7bv]

25:43

[@nehanthv4238]

46:00

[@euweel]

WAITT DID YOU JUST WRITE BACKWARDS/ MIRRORED (idk how to explain but) 😭😭😭 or am i trippin that is so impressive tho 😭😭😭

[@DrAzevedoEcon]

I wish that I could say that I have the skill to write backwards, but I'm writing on a large pane of glass and then the image is reversed so that it's readable.

[@Eco-zaki]

Why there are no word problems in your channel? I think they are very helpful.

[@DrAzevedoEcon]

I agree...I just haven't had a chance to add any yet. I'll see if I can come up with something soon.

[@Eco-zaki]

@@DrAzevedoEcon You can make alot of word problems like organic chemistry tutor youtube channel.

[@babzbunny1990]

Amazing! I'm preparing for my CPA exam BEC and this lesson has helped me so much! I'm very grateful thank you so much!!!🥲

[@DrAzevedoEcon]

Glad to help! Good luck with the exam!

[@jeetu724]

🎯 Key Takeaways for quick navigation: 00:00 📚 *Characteristics of Perfectly Competitive Markets* - Perfectly competitive markets have lots of buyers and sellers, with each being small compared to the market size. - Goods offered for sale are identical, and there are no barriers to entry. 03:35 💰 *Perfect Competition: Buyers and Sellers as Price Takers* - In perfectly competitive markets, both buyers and sellers are price takers. - Buyers and sellers take the market price as given, though the price can change due to shifts in demand and supply. 06:18 💹 *Perfectly Elastic Demand Curve for a Competitive Firm* - The demand curve for an individual firm in a perfectly competitive market is perfectly elastic at the market price. - Buyers are willing to buy any quantity at the market price, making the firm's demand curve horizontal. 13:13 📈 *Relationship between Marginal Revenue and Price in Perfect Competition* - In perfect competition, price and marginal revenue are equal for a competitive firm. - Marginal revenue remains constant and is equal to the market price. 18:50 🧮 *Maximizing Profit in Perfectly Competitive Markets* - Profit is maximized when marginal revenue equals marginal cost for a perfectly competitive firm. - The firm should produce the quantity where marginal revenue and marginal cost are equal to achieve maximum profit. 25:00 📈 *Cost Curves Overview* - Explanation of a competitive firm's cost curves: marginal cost, average total cost, and average variable cost. 26:10 🔄 *Marginal Revenue and Marginal Cost Equilibrium* - Introduction of market price affecting marginal revenue. - Identification of the profit-maximizing quantity as the point where marginal revenue equals marginal cost. 27:22 📊 *Evaluating Different Quantities* - Analysis of why producing quantities to the left or right of the profit-maximizing quantity is suboptimal. - Understanding the relationship between marginal revenue and marginal cost for different production quantities. 30:14 🔄 *Market Price Changes and Firm's Response* - Explanation of how changes in market price impact the firm's production quantity. - Illustration of the firm's reaction to a lower or higher market price. 33:34 🛑 *Short-Run Decision to Shut Down* - Differentiation between short-run shutdown and long-run exit decisions. - Clarification that shutting down reduces variable cost to zero but fixed cost remains. 36:26 ⚖️ *Short-Run Shutdown Condition* - Introduction of the firm's short-run shutdown condition: shutting down if total revenue is less than variable cost. - Transformation of the shutdown condition into the per-unit basis: shutting down if price falls below average variable cost. 43:41 📈 *Graphical Representation of Shutdown Condition* - Graphical depiction of the shutdown condition, indicating the point below which the firm shuts down. - Identification of the competitive firm's short-run supply curve, defined by the marginal cost curve up to the minimum point of the average variable cost. 47:24 🔄 *Sunk Costs and Decision Making* - Definition and explanation of sunk costs as costs that have been committed and cannot be recovered. - Emphasis on the distinction between sunk costs and opportunity costs in decision-making. 51:27 🏭 *Short-Run Production Decisions* - Firms ignore fixed costs when making production decisions. - Fixed costs do not impact the firm's supply curve, which is determined by the average variable cost and marginal cost curves. - Counterintuitively, firms disregard fixed costs when deciding on production levels. 52:33 🔄 *Long-Run Entry and Exit Decisions* - Entrepreneurs enter markets with positive profits; exit when profits are negative. - Exit decision: Total revenue less than total cost (negative profit). - Entry decision: Total revenue greater than total cost (positive profit). 54:09 📈 *Long-Run Supply Curve* - Competitive firm's long-run supply curve is the portion of its marginal cost curve down to where price equals the bottom of average total cost. - If price falls below average total cost, the firm exits the market. - The long-run supply curve is the competitive firm's marginal cost curve above the average total cost curve. 55:54 💹 *Profit Maximization for Competitive Firms* - Competitive firms maximize profit by producing where price equals marginal cost. - The competitive firm's profit-maximizing condition is to produce where price equals marginal cost. - Short-run and long-run supply curve considerations for competitive firms. 58:34 📊 *Visualizing Profit for a Competitive Firm* - Algebraic representation of profit: Profit = (Price - Average Total Cost) * Quantity. - Graphical representation: Positive profit when price is above average total cost. - Negative profit (loss) when price is below average total cost, emphasizing visual understanding. 01:00:50 📉 *Profit Analysis for Competitive Firms* - Profit algebraically represented as P * Q - Average Total Cost * Q. - Graphical depiction: Positive profit area above the average total cost curve. - Negative profit (loss) when price is below average total cost, leading to a negative profit area. Made with HARPA AI