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Unformatted text preview: Proﬁt Maximization and Firm Supply. 1. LongRun Proﬁt Maximization. Proﬁt: π = Revenue − Cost = P · q − T C (q ). ∗ Proﬁt maximization conditions: q is proﬁt maximizing if ∗ dT C (q ) ∗ P= = M C (q ) dq ∗ M C (q ) ↑ ∗ P ≥ AC (q ). Longrun supply curve: MC curve truncated at the minimum point of the AC curve. 2. ShortRun Proﬁt Maximization. Proﬁt: π = P · q − ST C (q ). ∗ Proﬁt maximization conditions: q is proﬁt maximizing if ∗ dST C (q ) ∗ P= = SM C (q ) dq ∗ SM C (q ) ↑ ∗ P ≥ AV C (q ). Shortrun supply curve: SMC curve truncated at the minimum point of the AVC curve. 3. Proﬁt Maximization with a Single Variable Input. ¯ ¯ Proﬁt: P F (L, K ) − v K − wL, where P is the price of the output. ∗ Proﬁt maximization condition: L is proﬁt maximizing if ∗¯ ∂ F (L, K ) P· =w ∂L ∗¯ P · M P (L  K ) = w ∗¯ V M P (L  K ) = w, ∗¯ where V M P (L  K ) is the value of the marginal product of labor, ∗¯ M P (L  K ) ↓, and ∗¯ ∗¯ M P (L  K ) ≤ AP (L  K ). ...
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This note was uploaded on 10/05/2010 for the course ECON 104A taught by Professor Thomas during the Spring '10 term at UC Riverside.
 Spring '10
 THOMAS

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