lectureAssignment10

lectureAssignment10 - 1 ECONOMICS 100 Lecture Assignment...

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ECONOMICS 100 Lecture Assignment #10 (Profit Maximizing Rules) Source: LR11, Chapter 9, pages 210-212; LR10, Chapter 9, pages 212-214. Lecture presents a somewhat different approach, but reaches same conclusions. Background We've developed a theory of the relationship between inputs and output (productivity curves); we've translated that data, assuming constant input prices, into a relationship between output (q) and short run costs (cost curves). Now we need to examine which level of output is "best" i.e., maximizes (economic) profits, where profits are equal to the difference between Total Revenues (TR), and Total Costs (TC). [Sometimes, as you will see, profit maximization translates into loss minimization. Note that in the long run firms will exit rather than incur losses, so this idea relates to the short run only.] 1. The Short Run Decision on Whether to Produce at All Consider a producer who can sell as much output as he/she chooses at a price of $10.00 per unit. (This is the case of perfect competition , about which you'll learn more soon). Consider now two different cost situations, both of which involve fixed costs of
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This note was uploaded on 08/24/2010 for the course ECO 100 taught by Professor Indart during the Fall '08 term at University of Toronto.

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lectureAssignment10 - 1 ECONOMICS 100 Lecture Assignment...

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