Theme6_concurrence_A08AN

Theme6_concurrence_A08AN - Competitive firms and markets 2...

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Competitive firms and markets
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2 Introduction Profit maximization Behavior of a firm in a competitive market: In the short run (SR) In the long run (LR)
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3 Profit maximization π(q) = R(q) – C(q) 2 steps: What is the output level, q*, which maximizes profits (minimises losses) ? Is the firm better off producing q* or shutting down?
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4 Output decision What do you think is the typical shape of a profit curve? At q*, what is the slope of this curve? Conclusions? π q q*
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5 A firm maximizes profits when: MC = MR If MC < MR, how can the firm increase its profits? What if MC > MR? The single MOST important thing
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6 Shutdown decision Should a firm shut down if π(q*) < 0 ? Ex1: At q*, R = $2,000, VC = $1,000 and F = $3,000 Ex2: At q*, R = $500, VC = $1,000 and F = $3,000 Conclusion ?
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Output decision (cont.) A firm should continue to operate in the short run if its revenue covers its variable cost. Shutdown if:
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This note was uploaded on 11/01/2010 for the course BUSINESS 2789 taught by Professor Carl during the Fall '08 term at HEC Montreal.

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Theme6_concurrence_A08AN - Competitive firms and markets 2...

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