EEM_Profit - 9/9/09 EEM: Profit, Costs, and Supply Click to...

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9/9/09 Theory of the Firm In market economy firms exist to maximize profits In many countries energy resources owned by state which may have different objectives Profit function = TR – TC TR: Total revenue, number of products you SELL times the price of the product TC: Total cost of producing, through the PURCHASE of inputs, the products you sell
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9/9/09 TWO RELATED WAYS OF Method 1 Have production function Relates inputs to output Tabulate costs using cost identify Cost = amount of input used * price of input Similar to expenditure fcn Will look at today only Method 2 By pass production function and start with a cost function Easier to work with than method 1 Will use quite a bit in this class WE CAN UNIFY METHOD 1 AND METHOD 2 USING THE LEGRANGE MULTIPLIER METHOD.
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9/9/09 RECALL Perfect competition In a PC market firm takes price as given and can sell as much product it can produce Is small in comparison to market so its production level is
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EEM_Profit - 9/9/09 EEM: Profit, Costs, and Supply Click to...

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