Dominick Salvatore Schaums Outline of Microeconomics, 4th edition Schaums Outline Series 2006

CHAP. 8] PRICE AND OUTPUT UNDER PERFECT COMPETITION 185
8.2 PRICE DETERMINATION IN THE MARKET PERIOD
The market period, or the very short run, refers to the period of time in which the market supply of the
commodity is completely fixed. When dealing with perishable commodities in the market period, costs of production
are irrelevant in the determination of the market price and the entire supply of the commodity is offered
for sale at whatever price it can fetch.
EXAMPLE 2. In Fig. 8-2, S represents the fixed market supply of a commodity in the market period. If the market demand
curve for the commodity is given by D, the equilibrium market price is $8 per unit in the market period. If we had D 0 instead,
the equilibrium price, would be $24.
Fig. 8-2
8.3 SHORT-RUN EQUILIBRIUM OF THE FIRM: TOTAL APPROACH
Total profits equal total revenue (TR) minus total costs (TC). Thus, total profits are maximized when the
positive difference between TR and TC is greatest. The equilibrium output of the firm is the output at which
total profits are maximized.
EXAMPLE 3. In Table 8.1, quantity [column (1)] times price [column (2)] gives us TR [column (3)]. TR minus TC
[column (4)] gives us total profits [column (5)]. Total profits are maximized (at $1690) when the firm produces and sells
650 units of the commodity per time period.
(1)
Q
(2)
P ($)
Table 8.1
(3)
TR ($)
(4)
TC ($)
(5)
Total Profits ($)
0 8 0 800 2800
100 8 800 2000 21200
200 8 1600 2300 2700
300 8 2400 2400 0
400 8 3200 2524 þ676
500 8 4000 2775 þ1225
600 8 4800 3200 þ1600
650 8 5200 3510 þ1690
700 8 5600 4000 þ1600
800 8 6400 6400 0