econ 302 notes - Short run -Variable costs = Work * Labor...

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Short run -Variable costs = Work * Labor -Current supply and demand curves determine profit -If P>AVC then firms are making a short run profit and don’t need to exit Long Run -Variable costs = wL+rK -MC=ATC=P determines profit -If P>ATC then firms are making a long run profit and don’t need to exit If Profit LR > 0 new firms will enter, drive price down If Profit LR < 0 firms will exist, drive price up In a perfectly competitive market prices will be driven to min ATC = 0 profit If P>ATC new firms will enter If P= min ATC = MC 0 profit, firms will no longer be making positive profit, could be doing better elsewhere If P< min ATC, firms will exist and price will be driven up TAXES Efficiency = size of the pie Equity = split of the pie Price ceilings, consumers better off, producers worse off, DWL Price floors, consumers worse off, producers better off, DWL Lump sum tax = no DWL If firm pays tax Pfirm= P- t Qd (P) = Qs (P-t) If customers pay tax Qd (p+t) = Qs(p) Pd + T = Pd(q) *Economic impact of the tax is the same whether it’s on producers or consumers
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This note was uploaded on 02/11/2010 for the course ECON 302 taught by Professor Avrin-rad during the Spring '09 term at University of Illinois, Urbana Champaign.

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econ 302 notes - Short run -Variable costs = Work * Labor...

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