ch07_condensed

ch07_condensed - Micro 101, Chapter 7 1 Chapter 7...

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Micro 101, Chapter 7 1 Chapter 7 Objectives: 1. Distinguish between accounting profit and economic profit 2. Understand what firm owners contribute to production that may allow them to make positive economic profit (1) if they take on risks, (2) if they do something innovative “economic profit > 0” means “above normal rate of return” 3. Describe constraints faced by firms 4. Use two (equivalent) approaches to determine profit- maximizing output level of a firm (a) find Q that provides greatest positive difference between total revenue and total cost (b) find Q in which marginal revenue = marginal cost MR = MC 5. Explain how firms deal with negative economic profits in the short-run vs. the long-run (when to shut down) 6. Describe the principle-agent problem
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Micro 101, Chapter 7 2 Theory of short-run profit maximization goal: choose ___ and ____ to maximize profit = total revenue – total (economic) cost π = TR TC both depend on Q choice of ___ and ___ are really the same choice: constrained by demand curve for its product - convenient to assume firm chooses ___
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ch07_condensed - Micro 101, Chapter 7 1 Chapter 7...

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