00:01
All right, so we're given a monopolistically competitive firm and we're asked a couple of questions regarding, you know, profit maximization and long -rary equilibrium.
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All right, so let's get into it.
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So here's my mouse.
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All right.
00:15
So the best way to approach these questions is actually understanding the firm dynamics of itself.
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So in regards to long equilibrium, there are two ways you think about it.
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The first way is looking at it in the long run, the long run.
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And then you can probably guess the second way, it is the short run.
00:42
So the big condition you need to know for the long run is that, let's get a blow point here, profit in the long run, zero, zero, let's get all caps.
01:01
That's like the big concept you need to know for monopolistically combative firm in the long run.
01:07
And a lot of times in economics, you know, we take these, you know, concepts and we, you know, transform them into mathematical equations.
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And for this, you know, concept, our mathematical equation for private equaling zero means that our price is equal to our mtc.
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If you close about this, you know, you can multiply both sides by q and you'll see that total revenue equal to the total cost.
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But the big picture here is that profit equaling zero means that pi is equal to atc.
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So then for the short run, let's blow a point here, you probably guess what the concept is.
01:50
So in this case, our profit is going to be not zero, not zero.
01:58
And our mathematical equation for this case is just the opposite of pie's equaling in case.
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So it's an inequality in this case.
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It's going to be price is good to be, it can be less than atc, or it could be greater than atc.
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So these are big things we need.
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So the dynamics of the firm basically works, if you know, if you have some, you know, firm that's in the short run, usually it has, you know, some kind of, you know, disequilibrium.
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In this case, right, prices, you know, less than atc or it's greater than atc.
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But given enough time, all of these firms will, you know, regardless of where they start from the short run, they will eventually approach the long run.
02:50
So, for example, in our case with this price is less than atc guy, so, you know, if price is less than atc, that means that we're currently making negative economic profit.
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And what that does to the market is that it drives out sellers.
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And because sellers leave the market, our supply goes down and our price will eventually go up.
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So a way of visualizing that is just with their standard supply and demand graph.
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So here are axes, price quantity.
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So downward slipping is demand.
03:20
I'll put slipping in supply.
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So like i said, you know, the price is less than atc.
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That means negative economic profit.
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Suppliers are getting driven out of the market.
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So what that does is, you'll call this s -0 initial.
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That's going to shift our supply up.
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And as you can see, it's going to increase our price.
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So this price less than 8 .e.
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This price here is going to go up, and then it'll eventually hit p equal atc and profit equals zero.
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So it's the exact same thing except for our price is greater than atc case.
03:56
So because this profit being made in the market, that's going to attract a lot of sellers, which is going to shift our supply, or i guess it'll increase our supply.
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And then as you can see, it'll put our price down.
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And eventually, you know, get it back to price equals atc, where they're equal.
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So that's like the big picture for this slide is that, you know, in the long run for a monopolistic competitive firm, our profit is zero.
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And that means our price equal to atc.
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That's, you know, the dynamics of the firm.
04:33
So now that we got that, we should understand profit maximization.
04:40
So for profit maximization.
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So if you are a firm, you know, the first, you know, question you need to, like, address is, like, your quantity.
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You know, how much are we going to produce? how, you know, like, how much of our certain good are we going to produce? so, can answer that question? it is this question.
05:07
We're going to produce at a quantity at which our model revenue is equal to the model cost.
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I'm sure you see this rule quite a bit.
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It's at your microeconomics course.
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But it's just like all other firms, we're going to produce that a quantity at which mr equals mc.
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So we have a clarity from that.
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The next big question is our price.
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How does you do that at price? so i think the best way to answer this question is actually look at our graph.
05:38
For a monopolistically competitive firm.
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So let's get our axes labeled here.
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So we have our downwards -loping demand curve because we're priced makers in a monopolistically competitive firm.
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And then we have our mr curve based off that, mr here.
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And we have a curvy checkmark for our marginal cost curve.
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And then our atc curve, remember atc intersects mc at its minimum.
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And then there we go.
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So that's our repeated graph.
06:15
So let's try to problem maximize this.
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So define our quantity, right? we take our mri -m -r -e -c, so that is right here.
06:25
So we're going to reset this quantity.
06:28
But we're not going to produce at this exact price.
06:31
So this price right here, yeah, ignore.
06:34
Amateurs will select that.
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But, you know, we're professionals here.
06:38
So when we're trying to find a price for a price maker, we're going to go all the way up to this demand curve.
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So it's about right here.
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So this is our real price.
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And the reason why is because, you know, our demand curve is actually, this is like what people are demanding.
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This is what our consumers are demanding.
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And we're going to obviously charge the price that our consumers are demanding.
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And in this case, it's higher.
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So of course, we're going to charge a higher price.
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So that's how you find our price.
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So the way you find our price, like that as a rule here.
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We're going to charge it our price from a demand...