DIS 10 Handout - Aniko Oery University of California,...

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Unformatted text preview: Aniko Oery University of California, Berkeley Section 10: Short-run and long-run supply curves Econ 100A, MICRO-ECONOMIC ANALYSIS, Spring 2010 So far, we have derived long-run and short-run cost functions that depend on the output level only by solving the firms cost minimization problem. Remember that the long-run cost function is the solution to the cost minimization problem if all inputs are variable and the short-run cost function is the solution to the cost minimization problem if only part of the inputs (usually labor) is variable and and other inputs (usually capital) is fixed. Given these cost curves, we can solve the profit maximization problem of the firm in the long-run and in the short-run, which is given by max Q T R ( Q ) | {z } P ( Q ) Q- T C ( Q ) | {z } AC ( Q ) Q where T C ( Q ) is the long-run or short-run cost function depending on which case we are consid- ering. (Usually, we denote the short run total cost function by ST C ( Q )). The supply functions of the firms depend on the market structure in that industry. Today we will consider perfectly competitive markets where firms are price-takers. 1 Profit maximization in perfectly competitive markets Since in perfectly competitive markets firms are price takers, that is the demand faced by the...
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DIS 10 Handout - Aniko Oery University of California,...

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