10.19.10 Econ

10.19.10 Econ - software; access to search engines-product...

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10.19.10 Where to Produce? Intersection of marginal cost curve and demand curve Pareto-optimality – efficiency (page 486 of Colander), perfect competition. A Decision that makes one person better and no one worse off Produce at demand and marginal cost intersection. Perfect Competition – market equilibrates where price = marginal cost and average cost - lots of buyers and sellers - each seller in the market faces a very elastic demand curve o call this firm a price taker – a firm that takes the market price as a given o this is a firm that house no price policy; it takes the market price as a given - no entry or exit barriers - fully informed buyers and sellers (perfect information) o access to information is so inexpensive; computers; storage capabilities;
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Unformatted text preview: software; access to search engines-product homogeneity all sellers produce identical products-firms are product maximizers Perfectly elastic demand curve is horizontal line at a certain price level. A farmer enters a market that sells bushels of corn at a price level of 2.50 His demand is perfectly elastic which means he cannot sell above or below the market price because no one would buy or he would run himself out of business. Marginal Revenue extra revenue a firm gets from producing an extra unit of output Profit maximization is when Marginal Cost = Demand/Marginal Revenue price level Why? Any output above MC = MR means extra cost exceeds extra revenue Expanding output until MC = MR means maximizing profit...
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This note was uploaded on 02/24/2011 for the course ECON ECON 201 taught by Professor Elzinga during the Spring '09 term at UVA.

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