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Unformatted text preview: Department of Economics University of California, Berkeley ECON 100A Spring 2010- Section 13 GSI: Antonio Rosato Profit Maximization in the Long Run We already studied how the firm maximizes profits in the short run. We said that for a single firm marginal revenue = average revenue = price. We also said that the profit maximizing level of production is where marginal cost equals marginal revenue. What happens in the long-run? As we studied some sections ago, the difference between the short run and the long run is that we assume capital is fixed in the short run. We also studied the cost minimization problem of the firm in the short run and in the long run. We said that costs are higher (or equal) in the short run. So the problem of the firm in the long run is essentially the same than the problem of the firm in the short run. The firm wants to maximize its profits: Max q = R ( q )- C ( q ) The difference is that we are going to use the long run cost function instead of the short run cost function. Does R ( q ) change in the long run? No. R ( q ) = Pq , just like in the short run....
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This note was uploaded on 01/19/2011 for the course ECON 100A taught by Professor Woroch during the Spring '08 term at University of California, Berkeley.
- Spring '08