Class Notes - 11-19-07

Class Notes - 11-19-07 - Microeconomics Class Notes...

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Microeconomics – Class Notes – 11/19/07 II. Profit Maximization A. Produce as long as benefit of last unit >=, cost of the last unit 1. Cost = M.C 2. Benefit: M.R a. For a Monopoly, M.R < Price B. Profit Maximum rule FOR A MONOPOLY : * M.R = M.C Set Marginal Revenue = Marginal Cost to determine the quantity that maximizes profit. III. Graphically A. Demand * Monopoly faces the entire market demand – Market Demand is the same as the firm Demand * The Demand curve is downward sloping 1. Law of Demand : If the firm wishes to increase the quantity sold, the firm must decrease the price on all units. B. Marginal Revenue 1. Marginal Revenue falls faster than price because Marginal revenue = (the total change in revenue) divided by (the quantity). 2. (See Graph) EXAM: If you are giving a linear Demand curve, you can determine the Marginal Revenue We will be given demand function and find profit maximization point o First we find Marginal Revenue and then set MR = to M.C o We will need to know where M.C is on the graph (will be given)
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Class Notes - 11-19-07 - Microeconomics Class Notes...

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