Lec10 - sell it for Farmer Brown looks for maximizing...

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Lecture February 14 2011 1. Characteristics 2. Price taker 3. Short run a. Profit maximization b. Loss minimization c. Shut down 4. Long Run Industry Adjustment 5. Normal Profit =Pn a. Entry into industry P>Pn b. Exit from industry P< 6. P>Pn = Economic profit, price greater than price that just covers all costs. 7. P<Pn = Economic Loss, in the long run, you leave 8. When P=Pn , there won’t be no more entry 9. Monopoly – barriers to entry a. Research and Patents In the short run, firms will continue to operate as long as they can cover all their variable costs. If they can’t cover the variable costs in the long run, they stop producing because they do not want to increase their loss over time. Why general motor keeps producing cars? Variable cost of producing those car was lower than what they
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Unformatted text preview: sell it for. Farmer Brown looks for maximizing output Profit = total revenue – total cost Price optimizing level of output marginal benefit > marginal cost Law of diminishing return proves you can’t feed the world on a flower pot Law of diminishing marginal returns: if equal increments of an input are added, and the quantities of other inputs are held constant the resulting increase in output will decrease beyond some point. The marginal product of the input will diminish When diminishing return sets in, should you stop producing? No …when do you stop expanding, = when marginal revenue equals marginal cost...
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Lec10 - sell it for Farmer Brown looks for maximizing...

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