Chapter08_H - 6E:001 Principles of Economics Spring, 2008...

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1 6E:001 Principles of Economics Spring, 2008 Chapter 8 – Output and Price Decisions Ch.08 2 What’s ahead { Revenue z Total, Average and Marginal Revenue { Profit Maximization z Profit = Revenue - Cost z Profit Maximization: MR = MC Ch.08 3 From Demand to Revenue { Revenue = Price x Quantity { The firm can pick price, or it can pick quantity. { The market picks the other one. { How? The demand curve
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2 Ch.08 4 Alternative measures of revenue { Total Revenue (TR = Price x Quantity) { Average Revenue (AR = TR / Quantity = price) { Marginal Revenue (MR = Δ Revenue / Δ Quantity Ch.08 5 Demand and Revenue Textbook figures 1 and 2 Ch.08 6 Cost Curves Textbook Table 2 & Figure 3
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3 Ch.08 7 Profit { Total Profit = Total Revenue - Total Cost { Marginal Profit = Change in total profit as output changes by one (We’ll use this concept less than the book does) Ch.08 8 Profit Graph { The vertical distance between Revenue and Cost is profit z Profit is negative when costs exceed revenue (Figure 4 from Text) Ch.08 9 Profit Maximization { Profit is maximized when MR = MC
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Chapter08_H - 6E:001 Principles of Economics Spring, 2008...

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