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Class Notes - 10-12-07

# Class Notes - 10-12-07 - Microeconomics Class Notes 1 2...

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Microeconomics – Class Notes – 10/12/07 1. Profit Max Rule 2. Producer Surplus G. Profit Max Rule * A firm will produce as long as the gain > cost for that additional unit (Margin) 1. The gain of an additional unit = (increase in revenue from that 1 unit) * Total Revenue is the gain from all units * Marginal Revenue is the benefit (gain) of an additional unit a. Marginal Revenue = (Change in total Revenue) / (Change in quantity) b. Competitive Markets - Firms are price takers in competitive markets because there are so many firms selling the same product Marginal Revenue is constant = Price [Price-taking firms cannot change the price in a competitive market] 2. Cost of an additional unit (marginal cost) == Marginal Cost (cost of the last unit that we make [production costs compared to benefits of selling the unit]) * M.C = (The change in total cost) / (the change in quantity) 3. Produce as long as - M.R >= M.C [Price = M.R >= M.C ] - M.R = M.C - P = M.C If the firm follows this rule, then we achieve the goal of the firm. Quantity produced will maximize profit subject to production function

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Class Notes - 10-12-07 - Microeconomics Class Notes 1 2...

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