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outline_ch05 - Chapter 5: Perfectly Competitive Supply...

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Chapter 5: Perfectly Competitive Supply
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Introduction Productivity increases in manufacturing easily justifies the more than five fold Increase in wages over the past 100 years. However, similar productivity increases have not occurred in many service industries. Yet, the wages in those industries have increased together with the wages in manufacturing!
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Introduction The reason for this is that wages in manufacturing are the opportunity for workers in service industries! In other words, suppliers must be paid Enough to cover their opportunity costs. While suppliers would prefer to be paid more Than their marginal opportunity costs, and They frequently are, the latter is the minimum They must be paid in order voluntarily to supply their products.
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I. Profit-Maximizing Firms and Perfectly Competitive Markets
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Buyers and Sellers Buyers and Sellers ask similar questions: Buyers “Should I buy another unit?” Answer: Yes, but only if the marginal benefit exceeds the marginal cost Sellers “Should I sell another unit? Answer: Yes, but only if the marginal benefit (revenue) exceeds the marginal cost of making it
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Profit Maximization Profit The total revenue the firm receives from the sale of its products minus all costs incurred in their production Profit-Maximizing Firm A firm whose primary goal is to maximize profits
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Suppliers first use the resources with the lowest opportunity costs. So, if output is increased then the price of the output must go up in order to compensate for the use of resources with higher opportunity costs. Therefore, in the short run, the firms’
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outline_ch05 - Chapter 5: Perfectly Competitive Supply...

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