ECON 1 Lecture Notes 1101

ECON 1 Lecture Notes 1101 - ECON 1 Lecture Notes Profit...

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ECON 1 Lecture Notes 11/01/10 Profit Maximization Profit: “earnings”… total revenue – total cost = total revenue – (fixed cost + variable cost) change in profit = change in total revenue – change in total cost change in total revenue ^ = change in profit ^, change in total cost ^ change in profit goes down Will profit increase if another unit is produced and sold? - it depends on marginal revenue and marginal cost. o Marginal revenue = change in total revenue from a one-unit increase in the quantity sold o Keep producing as long as MR > MC up to the point when MR = MC o In a perfectly competitive market, MR = P Change in profit > 0 when Q increases if P > MC Change in profit < 0 when Q increases if P < MC When fixed costs changes, the MC stays the same! Profit = price x quantity – total cost Summary: Profit Maximization - Profit maximization requires production to o Increase if P > MC o Decrease if P < MC o If fixed costs change, the optimal production level doesn’t change (marginal cost is not
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This note was uploaded on 08/30/2011 for the course ECON 1 taught by Professor Tang during the Fall '08 term at UCSD.

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ECON 1 Lecture Notes 1101 - ECON 1 Lecture Notes Profit...

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