ReviewMT2 - Aniko Oery University of California, Berkeley...

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Unformatted text preview: Aniko Oery University of California, Berkeley Review for Midterm 2 Econ 100A, MICRO-ECONOMIC ANALYSIS, Spring 2010 For the first midterm you have learned how to derive the demand curve by solving the consumer choice problem and how to derive the short- and long-run cost functions by solving the cost minimization problem. In the second part of the class (which is the relevant part for MT2) we have analyzed the supply side of the market further for two types of markets: 1. Perfect Competition and 2. Monopoly. First, note that under all circumstances the firm is maximizing profits = T R ( Q )- T C ( Q ). The first order condition (FOC) of this maximization problem is MR ( Q ) = MC ( Q ) . 1 Profit maximization and supply curves under perfect competition Under perfect competition we distinguish between the short- and the long-run. Remember the following facts: 1. In the short-run some inputs are fixed, so the short-run total cost (TC) is always greater or equal to the long-run total cost. 2. In a perfectly competitive market, firms are price takers , i.e. MR ( Q ) = P * where P * is the equilibrium market price. In other words, the demand faced by the firm is perfectly elastic . The following table summarizes the most important formulas: short-run long-run costs non-sunk costs: VC + part of FC NO sunk costs!!...
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ReviewMT2 - Aniko Oery University of California, Berkeley...

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