Slides FV L6 _from HP_ - EWMBA 201A Economic Analysis for...

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Click to edit Master subtitle style 9/22/09 EWMBA 201A Economic Analysis for Lecture 6: Profit Maximization September 14-15, 2009 Felix Várdy
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9/22/09 Midterm Mean = 79 Median = 79 Max = 105 Min = 59 3 people above 100. www.surveymonkey.com
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9/22/09 Overview Up to now, we have studied: Costs faced by firm: Fixed vs. variable costs Marginal vs. average costs Demand faced by firm Perfectly competitive market (firm ≠ market demand!)
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9/22/09 Overview Profit maximizing Q in perfectly competitive market Profit maximizing Q (or P ) with downward sloping demand/Monopoly General “algorithm”
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9/22/09 Perfectly Competitive market Demand curve faced by competitive firm vs. industry Firm Industr y Price ($ per oran ge) Outpu t (Oran Output (billions of Price ($ per oran ge) . 1 5 . 1 5 100 0 200 0 1 2 3 D
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9/22/09 Perfectly Competitive market At equilibrium price, competitive firm can supply as much as it wants without negatively affecting price. (Smallness assumption.) Hence, each extra orange generates $.15 extra revenue: MR( Q ) = P = .15 Conditional on being in business –i.e., having already sunk the fixed cost—optimal Q rule is, essentially,: “Increase Q as long as MC < MR = P”
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Perfectly Competitive market Price ($ per oran ge) Outpu t (Oran . 1
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Slides FV L6 _from HP_ - EWMBA 201A Economic Analysis for...

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