economics denzel presentation (perfect competition)

Denzel Partnership PresentsDenzel Partnership Presents

Sushi 360ºSushi 360º

The Nature of Our The Nature of Our MarketMarket

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 The Nature of Our MarketMarket

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 Every product is substitutable with others in the marketmarket

EfficientEfficient

Easy entry and exitEasy entry and exit

GraphsGraphsImportant points Important points of perfect of perfect competitioncompetition

Quantity

Cost

P = MR= 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

Quantity

S1

D

P1

Q1

S2

P2

Q20

Cost

Quantity

P1

MC

AC

Q1

C

P1

P2

Q2

The impact on a market of supernormal

profit

0

Short-run losses

CostCost

QuantityQuantity

CC

PP

QQ

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 We can easily enter the market with little investmentinvestment

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

DisadvantagesDisadvantages

Stolen 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.