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ECON 1 Lecture Notes 1027

ECON 1 Lecture Notes 1027 - because they have...

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ECON 1 Lecture Notes 10/27/10 Utility Maximization Two conditions must hold: - p1x + p2y = M (BC is satisfied) - MRS = p1/p2 (at the optimal bundle BC in tangent to the indiff. curve) - MRS = MU1/MU2 - MU1/MU2 = P1/P2 < -- > MU1/P1 = MU2/P2 (rational spending rule) Chapter 6 – Supply Behavior of firms - Objective of firms: consumers want to make themselves most satisfied (maximize utility)… firms try to maximize their profits
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Unformatted text preview: because they have shareholders (assumption)-Profit = total revenue – total cost Two Sides of Profit Maximization 1. Costs: how much it costs a firm to produce something a. Relates to production technology for the firm 2. Revenues: how much a firm can get from selling something a. Relates to the market structure...
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